The stock of Taitron Components (NAS:TAIT, 30-year Financials) gives every indication 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 $4.0801 per share and the market cap of $23.8 million, Taitron Components stock gives every indication of being significantly overvalued. GF Value for Taitron Components is shown in the chart below.
Because Taitron Components 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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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. Taitron Components has a cash-to-debt ratio of 40.81, which is better than 85% of the companies in Hardware industry. GuruFocus ranks the overall financial strength of Taitron Components at 7 out of 10, which indicates that the financial strength of Taitron Components is fair. This is the debt and cash of Taitron Components 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. Taitron Components has been profitable 4 years over the past 10 years. During the past 12 months, the company had revenues of $6.7 million and earnings of $0.24 a share. Its operating margin of 15.74% better than 88% of the companies in Hardware industry. Overall, GuruFocus ranks Taitron Components's profitability as poor. This is the revenue and net income of Taitron Components 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 Taitron Components is -5.4%, which ranks worse than 68% of the companies in Hardware industry. The 3-year average EBITDA growth rate is 6.4%, which ranks in the middle range of the companies in Hardware 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, Taitron Components's return on invested capital is 14.95, and its cost of capital is 10.73. The historical ROIC vs WACC comparison of Taitron Components is shown below:
In conclusion, The stock of Taitron Components (NAS:TAIT, 30-year Financials) appears to be significantly overvalued. The company's financial condition is fair and its profitability is poor. Its growth ranks in the middle range of the companies in Hardware industry. To learn more about Taitron Components stock, you can check out its 30-year Financials here.
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