The stock of GRAVITY Co (NAS:GRVY, 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 $101.17 per share and the market cap of $703.1 million, GRAVITY Co stock appears to be significantly overvalued. GF Value for GRAVITY Co is shown in the chart below.
Because GRAVITY Co is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 41.6% over the past five years.
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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. GRAVITY Co has a cash-to-debt ratio of 10000.00, which ranks better than 100% of the companies in Interactive Media industry. Based on this, GuruFocus ranks GRAVITY Co's financial strength as 7 out of 10, suggesting fair balance sheet. This is the debt and cash of GRAVITY Co 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. GRAVITY Co has been profitable 6 over the past 10 years. Over the past twelve months, the company had a revenue of $348.2 million and earnings of $7.728 a share. Its operating margin is 22.18%, which ranks better than 78% of the companies in Interactive Media industry. Overall, GuruFocus ranks the profitability of GRAVITY Co at 7 out of 10, which indicates fair profitability. This is the revenue and net income of GRAVITY Co 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 GRAVITY Co is 41.6%, which ranks better than 86% of the companies in Interactive Media industry. The 3-year average EBITDA growth rate is 85.4%, which ranks better than 93% of the companies in Interactive Media 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, GRAVITY Co's return on invested capital is 173.49, and its cost of capital is -0.60. The historical ROIC vs WACC comparison of GRAVITY Co is shown below:
Overall, The stock of GRAVITY Co (NAS:GRVY, 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 better than 93% of the companies in Interactive Media industry. To learn more about GRAVITY Co stock, you can check out its 30-year Financials here.
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