The stock of GRAVITY Co (NAS:GRVY, 30-year Financials) shows every sign of being 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 $113 per share and the market cap of $785.4 million, GRAVITY Co stock shows every sign of being significantly overvalued. GF Value for GRAVITY Co is shown in the chart below.
Because GRAVITY Co is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 92% over the past five years.
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Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Thus, it is important to carefully review the financial strength of a company before deciding whether to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company. GRAVITY Co has a cash-to-debt ratio of 9999.00, which is in the bottom 10% of the companies in Interactive Media industry. GuruFocus ranks the overall financial strength of GRAVITY Co at 7 out of 10, which indicates that the financial strength of GRAVITY Co is fair. This is the debt and cash of GRAVITY Co over the past years:
It poses less risk to invest in profitable companies, especially those that have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. GRAVITY Co has been profitable 6 over the past 10 years. Over the past twelve months, the company had a revenue of $348.2 million and earnings of $7.709 a share. Its operating margin is 22.18%, which ranks better than 78% of the companies in Interactive Media industry. Overall, GuruFocus ranks the profitability of GRAVITY Co at 6 out of 10, which indicates fair profitability. This is the revenue and net income of GRAVITY Co 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 GRAVITY Co is 92%, which ranks better than 96% of the companies in Interactive Media industry. The 3-year average EBITDA growth rate is 133.9%, which ranks better than 97% of the companies in Interactive Media industry.
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average cost of capital. 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. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, GRAVITY Co's return on invested capital is 87.50, and its cost of capital is -0.20. The historical ROIC vs WACC comparison of GRAVITY Co is shown below:
Overall, GRAVITY Co (NAS:GRVY, 30-year Financials) stock gives every indication of being significantly overvalued. The company's financial condition is fair and its profitability is fair. Its growth ranks better than 97% of the companies in Interactive Media industry. To learn more about GRAVITY Co stock, you can check out its 30-year Financials here.
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