Weibo’s stock (NAS: WB, 30-year-old Financials) is estimated to be slightly undervalued, according to the GuruFocus Value calculation. GuruFocus Value is GuruFocus’s estimate of the fair value at which the stock should trade. It is calculated based on the historical multiples at which the stock has traded, past growth in business and analysts’ estimates of the company’s future performance. If a stock’s price is significantly above the GF value line, it is overvalued and its future performance is likely to be poor. On the other hand, if it is significantly lower than the GF value line, its future return will probably be higher. At its current price of $ 49.48 per share and market cap of $ 11.2 billion, Weibo stock is reportedly slightly undervalued. The GF value for Weibo is shown in the graph below.
Because Weibo is relatively undervalued, its long-term stock return is likely to be higher than its business growth, which has averaged 38.4% over the past three years and is expected to grow by 8.32% per year over the next three to five years.
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Investing in companies with low financial strength carries a higher risk of permanent loss of capital. It is therefore important to carefully consider the financial strength of a company before deciding whether or not to buy its shares. Examining the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a business. Weibo has a cash-to-debt ratio of 1.44, which is worse than 73% of companies in the interactive media industry. GuruFocus ranks Weibo’s overall financial strength as 5 out of 10, which indicates that Weibo’s financial strength is acceptable. Here is Weibo’s debt and cash flow for the past few years:
Investing in profitable businesses carries less risk, especially in businesses that have demonstrated consistent profitability over the long term. Typically, a business with high profit margins offers better performance potential than a business with low profit margins. Weibo has been profitable 5 years in the past 10 years. In the past 12 months, the company achieved sales of $ 1.7 billion and earnings of $ 1.37 per share. Its operating margin of 29.99% better than 86% of companies in the interactive media sector. Overall, GuruFocus ranks Weibo’s profitability as fair. Here is Weibo’s revenue and bottom line for the past few years:
Growth is probably the most important factor in the valuation of a business. GuruFocus research has shown that growth is closely tied to the long-term performance of a company’s stocks. The faster a company grows, the more likely it is to create shareholder value, especially if the growth is profitable. Weibo’s 3-year average annual revenue growth rate is 38.4%, which ranks better than 84% of companies in the interactive media industry. The 3-year average EBITDA growth rate is 61.4%, which ranks better than 88% of companies in the interactive media industry.
Another way to look at a company’s profitability is to compare its return on invested capital and the weighted cost of capital. Return on invested capital (ROIC) measures the extent to which a business 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 of its security holders to finance its assets. We want the return on invested capital to be greater than the weighted cost of capital. In the past 12 months, Weibo’s return on invested capital is 21.56 and its cost of capital is 7.33. The historical comparison of ROIC versus Weibo’s WACC is shown below:
Overall, Weibo (NAS: WB, 30-year-old Financials) stock is showing all signs of modest undervaluation. The company’s financial position is fair and its profitability is fair. Its growth ranks better than 88% of companies in the interactive media sector. To learn more about the Weibo share, you can view its 30-year financial statements here.
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