– By GF Value
The stock of Gilat Satellite Networks (NAS:GILT, 30-year Financials) appears to be significantly overvalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus’ estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $10.77 per share and the market cap of $607.8 million, Gilat Satellite Networks stock appears to be significantly overvalued. GF Value for Gilat Satellite Networks is shown in the chart below.
Because Gilat Satellite Networks is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth.
Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company’s financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. Gilat Satellite Networks has a cash-to-debt ratio of 9.98, which which ranks better than 77% of the companies in Hardware industry. The overall financial strength of Gilat Satellite Networks is 5 out of 10, which indicates that the financial strength of Gilat Satellite Networks is fair. This is the debt and cash of Gilat Satellite Networks over the past years:
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Gilat Satellite Networks has been profitable 4 years over the past 10 years. During the past 12 months, the company had revenues of $165.9 million and earnings of $0.62 a share. Its operating margin of -9.66% worse than 83% of the companies in Hardware industry. Overall, GuruFocus ranks Gilat Satellite Networks’s profitability as poor. This is the revenue and net income of Gilat Satellite Networks over the past years:
Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term performance of a company’s stock. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Gilat Satellite Networks is -16.7%, which ranks worse than 87% of the companies in Hardware industry. The 3-year average EBITDA growth rate is 30.5%, which ranks better than 83% of the companies in Hardware industry.
Another way to evaluate a company’s profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Gilat Satellite Networks’s ROIC was -7.03, while its WACC came in at 3.48. The historical ROIC vs WACC comparison of Gilat Satellite Networks is shown below:
In summary, Gilat Satellite Networks (NAS:GILT, 30-year Financials) stock is estimated to be significantly overvalued. The company’s financial condition is fair and its profitability is poor. Its growth ranks better than 83% of the companies in Hardware industry. To learn more about Gilat Satellite Networks stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.