The stock of Yelp (NYSE:YELP, 30-year Financials) gives every indication of being fairly valued, 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 $39.46 per share and the market cap of $3 billion, Yelp stock gives every indication of being fairly valued. GF Value for Yelp is shown in the chart below.
Because Yelp is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which averaged 7% over the past three years and is estimated to grow 5.17% 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. Yelp has a cash-to-debt ratio of 3.03, which is in the middle range of the companies in Interactive Media industry. The overall financial strength of Yelp is 7 out of 10, which indicates that the financial strength of Yelp is fair. This is the debt and cash of Yelp 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. Yelp has been profitable 4 years over the past 10 years. During the past 12 months, the company had revenues of $872.9 million and loss of $0.29 a share. Its operating margin of -4.00% in the middle range of the companies in Interactive Media industry. Overall, GuruFocus ranks Yelp's profitability as poor. This is the revenue and net income of Yelp over the past years:
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Yelp is 7%, which ranks in the middle range of the companies in Interactive Media industry. The 3-year average EBITDA growth is -31.2%, which ranks in the bottom 10% of the companies in Interactive Media 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, Yelp's ROIC is -3.30 while its WACC came in at 12.67. The historical ROIC vs WACC comparison of Yelp is shown below:
In summary, the stock of Yelp (NYSE:YELP, 30-year Financials) is estimated to be fairly valued. The company's financial condition is fair and its profitability is poor. Its growth ranks in the bottom 10% of the companies in Interactive Media industry. To learn more about Yelp stock, you can check out its 30-year Financials here.
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