The stock of Ultralife (NAS:ULBI, 30-year Financials) gives every indication of being 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 $8.1 per share and the market cap of $129.6 million, Ultralife stock is believed to be modestly undervalued. GF Value for Ultralife is shown in the chart below.
Because Ultralife is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth, which averaged 7.5% over the past three years and is estimated to grow 6.64% 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. Ultralife has a cash-to-debt ratio of 7.76, which is better than 76% of the companies in Industrial Products industry. The overall financial strength of Ultralife is 8 out of 10, which indicates that the financial strength of Ultralife is strong. This is the debt and cash of Ultralife over the past years:
It is less risky to invest in profitable companies, especially those with consistent profitability over long term. A company with high profit margins is usually a safer investment than those with low profit margins. Ultralife has been profitable 6 over the past 10 years. Over the past twelve months, the company had a revenue of $107.7 million and earnings of $0.33 a share. Its operating margin is 5.29%, which ranks in the middle range of the companies in Industrial Products industry. Overall, the profitability of Ultralife is ranked 6 out of 10, which indicates fair profitability. This is the revenue and net income of Ultralife 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 Ultralife is 7.5%, which ranks better than 66% of the companies in Industrial Products industry. The 3-year average EBITDA growth rate is 4.8%, which ranks in the middle range of the companies in Industrial Products 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, Ultralife's return on invested capital is 3.70, and its cost of capital is 12.80. The historical ROIC vs WACC comparison of Ultralife is shown below:
Overall, the stock of Ultralife (NAS:ULBI, 30-year Financials) is believed to be modestly undervalued. The company's financial condition is strong and its profitability is fair. Its growth ranks in the middle range of the companies in Industrial Products industry. To learn more about Ultralife stock, you can check out its 30-year Financials here.
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