The stock of ZW Data Action Technologies (NAS:CNET, 30-year Financials) appears 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 $2.06 per share and the market cap of $64.5 million, ZW Data Action Technologies stock is believed to be significantly overvalued. GF Value for ZW Data Action Technologies is shown in the chart below.
Because ZW Data Action Technologies is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth.
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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. ZW Data Action Technologies has a cash-to-debt ratio of 11.10, which ranks better than 77% of the companies in the industry of Media - Diversified. Based on this, GuruFocus ranks ZW Data Action Technologies's financial strength as 7 out of 10, suggesting fair balance sheet. This is the debt and cash of ZW Data Action Technologies 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. ZW Data Action Technologies has been profitable 2 over the past 10 years. Over the past twelve months, the company had a revenue of $38.4 million and loss of $0.23 a share. Its operating margin is -14.84%, which ranks worse than 76% of the companies in the industry of Media - Diversified. Overall, GuruFocus ranks the profitability of ZW Data Action Technologies at 3 out of 10, which indicates poor profitability. This is the revenue and net income of ZW Data Action Technologies 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 ZW Data Action Technologies is -22.7%, which ranks worse than 84% of the companies in the industry of Media - Diversified. The 3-year average EBITDA growth rate is 30.9%, which ranks better than 82% of the companies in the industry of Media - Diversified.
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, ZW Data Action Technologies's ROIC is -47.47 while its WACC came in at 4.71. The historical ROIC vs WACC comparison of ZW Data Action Technologies is shown below:
To conclude, the stock of ZW Data Action Technologies (NAS:CNET, 30-year Financials) is believed to be significantly overvalued. The company's financial condition is fair and its profitability is poor. Its growth ranks better than 82% of the companies in the industry of Media - Diversified. To learn more about ZW Data Action Technologies stock, you can check out its 30-year Financials here.
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