The stock of Orange SA (OTCPK:FNCTF, 30-year Financials) is believed to be modestly undervalued, 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 $12.81 per share and the market cap of $33.3 billion, Orange SA stock is estimated to be modestly undervalued. GF Value for Orange SA is shown in the chart below.
Because Orange SA is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth, which averaged 1.5% over the past three years and is estimated to grow 0.29% annually over the next three to five years.
Link: These companies may deliever higher future returns at reduced risk.
Since investing in companies with low financial strength could result in permanent capital loss, investors must carefully review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. Orange SA has a cash-to-debt ratio of 1.83, which ranks better than 75% of the companies in Telecommunication Services industry. Based on this, GuruFocus ranks Orange SA's financial strength as 5 out of 10, suggesting fair balance sheet. This is the debt and cash of Orange SA 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. Orange SA has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $49.5 billion and earnings of $2.054 a share. Its operating margin is 13.44%, which ranks in the middle range of the companies in Telecommunication Services industry. Overall, GuruFocus ranks the profitability of Orange SA at 7 out of 10, which indicates fair profitability. This is the revenue and net income of Orange SA over the past years:
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Orange SA is 1.5%, which ranks in the middle range of the companies in Telecommunication Services industry. The 3-year average EBITDA growth is 8%, which ranks in the middle range of the companies in Telecommunication Services industry.
Another way to look at the profitability of a company is to compare its return on invested capital and the weighted 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. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, Orange SA's return on invested capital is 6.97, and its cost of capital is 4.94. The historical ROIC vs WACC comparison of Orange SA is shown below:
In closing, the stock of Orange SA (OTCPK:FNCTF, 30-year Financials) appears to be modestly undervalued. The company's financial condition is fair and its profitability is fair. Its growth ranks in the middle range of the companies in Telecommunication Services industry. To learn more about Orange SA stock, you can check out its 30-year Financials here.
To find out the high quality companies that may deliever above average returns, please check out GuruFocus High Quality Low Capex Screener.
