The stock of AudioCodes (NAS:AUDC, 30-year Financials) is estimated 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 $30.26 per share and the market cap of $996 million, AudioCodes stock is believed to be significantly overvalued. GF Value for AudioCodes is shown in the chart below.
Because AudioCodes is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 11.2% over the past five years.
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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. AudioCodes has a cash-to-debt ratio of 1.39, which which ranks in the middle range of the companies in Hardware industry. The overall financial strength of AudioCodes is 7 out of 10, which indicates that the financial strength of AudioCodes is fair. This is the debt and cash of AudioCodes 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. AudioCodes has been profitable 8 years over the past 10 years. During the past 12 months, the company had revenues of $220.8 million and earnings of $0.82 a share. Its operating margin of 17.37% better than 90% of the companies in Hardware industry. Overall, GuruFocus ranks AudioCodes's profitability as fair. This is the revenue and net income of AudioCodes 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 AudioCodes is 11.2%, which ranks better than 78% of the companies in Hardware industry. The 3-year average EBITDA growth rate is 47.5%, which ranks better than 92% of the companies in Hardware industry.
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average 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 return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, AudioCodes's ROIC is 13.66 while its WACC came in at 6.79. The historical ROIC vs WACC comparison of AudioCodes is shown below:
In conclusion, The stock of AudioCodes (NAS:AUDC, 30-year Financials) appears to be significantly overvalued. The company's financial condition is fair and its profitability is fair. Its growth ranks better than 92% of the companies in Hardware industry. To learn more about AudioCodes stock, you can check out its 30-year Financials here.
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