The stock of MongoDB (NAS:MDB, 30-year Financials) shows every sign of being modestly 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 $265.77 per share and the market cap of $16.3 billion, MongoDB stock shows every sign of being modestly overvalued. GF Value for MongoDB is shown in the chart below.
Because MongoDB is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth, which averaged 12.7% over the past three years and is estimated to grow 28.67% annually over the next three to five years.
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It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. MongoDB has a cash-to-debt ratio of 0.98, which is worse than 68% of the companies in Software industry. The overall financial strength of MongoDB is 4 out of 10, which indicates that the financial strength of MongoDB is poor. This is the debt and cash of MongoDB 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. MongoDB has been profitable 0 years over the past 10 years. During the past 12 months, the company had revenues of $590.4 million and loss of $4.51 a share. Its operating margin of -35.45% worse than 81% of the companies in Software industry. Overall, GuruFocus ranks MongoDB's profitability as poor. This is the revenue and net income of MongoDB 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 stock performance of a company. A faster growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of MongoDB is 12.7%, which ranks better than 66% of the companies in Software industry. The 3-year average EBITDA growth rate is 2.5%, which ranks worse than 67% of the companies in Software 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, MongoDB's ROIC was -44.27, while its WACC came in at 7.69. The historical ROIC vs WACC comparison of MongoDB is shown below:
In closing, the stock of MongoDB (NAS:MDB, 30-year Financials) gives every indication of being modestly overvalued. The company's financial condition is poor and its profitability is poor. Its growth ranks worse than 67% of the companies in Software industry. To learn more about MongoDB stock, you can check out its 30-year Financials here.
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