The stock of AltiGen Communications (OTCPK:ATGN, 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 $2.03 per share and the market cap of $46.8 million, AltiGen Communications stock is believed to be significantly overvalued. GF Value for AltiGen Communications is shown in the chart below.
Because AltiGen Communications is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 9.2% over the past five years.
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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. AltiGen Communications has a cash-to-debt ratio of 3.83, which which ranks better than 67% of the companies in Hardware industry. The overall financial strength of AltiGen Communications is 8 out of 10, which indicates that the financial strength of AltiGen Communications is strong. This is the debt and cash of AltiGen Communications over the past years:
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. AltiGen Communications has been profitable 5 over the past 10 years. Over the past twelve months, the company had a revenue of $11.8 million and earnings of $0.06 a share. Its operating margin is 19.67%, which ranks better than 92% of the companies in Hardware industry. Overall, the profitability of AltiGen Communications is ranked 4 out of 10, which indicates poor profitability. This is the revenue and net income of AltiGen Communications over the past years:
Growth is probably one of the most important factors 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. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. AltiGen Communications's 3-year average revenue growth rate is better than 75% of the companies in Hardware industry. AltiGen Communications's 3-year average EBITDA growth rate is 72.7%, which ranks better than 96% of the companies in Hardware industry.
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average 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. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, AltiGen Communications's return on invested capital is 12.61, and its cost of capital is 9.55. The historical ROIC vs WACC comparison of AltiGen Communications is shown below:
In summary, the stock of AltiGen Communications (OTCPK:ATGN, 30-year Financials) appears to be significantly overvalued. The company's financial condition is strong and its profitability is poor. Its growth ranks better than 96% of the companies in Hardware industry. To learn more about AltiGen Communications stock, you can check out its 30-year Financials here.
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