The stock of Interlink Electronics (NAS:LINK, 30-year Financials) is believed 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 $13.8 per share and the market cap of $91.1 million, Interlink Electronics stock gives every indication of being significantly overvalued. GF Value for Interlink Electronics is shown in the chart below.
Because Interlink Electronics 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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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. Interlink Electronics has a cash-to-debt ratio of 17.05, which which ranks better than 80% of the companies in Hardware industry. The overall financial strength of Interlink Electronics is 7 out of 10, which indicates that the financial strength of Interlink Electronics is fair. This is the debt and cash of Interlink Electronics 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. Interlink Electronics has been profitable 7 over the past 10 years. Over the past twelve months, the company had a revenue of $7.3 million and loss of $0.02 a share. Its operating margin is -1.38%, which ranks worse than 73% of the companies in Hardware industry. Overall, GuruFocus ranks the profitability of Interlink Electronics at 5 out of 10, which indicates fair profitability. This is the revenue and net income of Interlink Electronics 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 Interlink Electronics is -13.4%, which ranks worse than 83% of the companies in Hardware industry. The 3-year average EBITDA growth rate is -38.1%, which ranks in the bottom 10% of the companies in Hardware industry.
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted 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 ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Interlink Electronics's ROIC was -2.65, while its WACC came in at 12.43. The historical ROIC vs WACC comparison of Interlink Electronics is shown below:
In short, the stock of Interlink Electronics (NAS:LINK, 30-year Financials) gives every indication of being significantly overvalued. The company's financial condition is fair and its profitability is fair. Its growth ranks in the bottom 10% of the companies in Hardware industry. To learn more about Interlink Electronics stock, you can check out its 30-year Financials here.
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