The stock of ACM Research (NAS:ACMR, 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 $64.84 per share and the market cap of $1.2 billion, ACM Research stock shows every sign of being significantly overvalued. GF Value for ACM Research is shown in the chart below.
Because ACM Research is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 11.6% over the past three years and is estimated to grow 39.11% annually over the next three to five years.
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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. ACM Research has a cash-to-debt ratio of 2.21, which is in the middle range of the companies in Semiconductors industry. GuruFocus ranks the overall financial strength of ACM Research at 7 out of 10, which indicates that the financial strength of ACM Research is fair. This is the debt and cash of ACM Research over the past years:
It is less risky to invest in profitable companies, especially those with consistent profitability over long term. A company with high profit margins is usually a safer investment than those with low profit margins. ACM Research has been profitable 5 over the past 10 years. Over the past twelve months, the company had a revenue of $176 million and earnings of $1.036 a share. Its operating margin is 13.48%, which ranks better than 69% of the companies in Semiconductors industry. Overall, the profitability of ACM Research is ranked 6 out of 10, which indicates fair profitability. This is the revenue and net income of ACM Research 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. ACM Research's 3-year average revenue growth rate is better than 72% of the companies in Semiconductors industry. ACM Research's 3-year average EBITDA growth rate is 215.7%, which ranks better than 99% of the companies in Semiconductors 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, ACM Research's return on invested capital is 19.76, and its cost of capital is 8.33. The historical ROIC vs WACC comparison of ACM Research is shown below:
In conclusion, ACM Research (NAS:ACMR, 30-year Financials) stock gives every indication of being significantly overvalued. The company's financial condition is fair and its profitability is fair. Its growth ranks better than 99% of the companies in Semiconductors industry. To learn more about ACM Research stock, you can check out its 30-year Financials here.
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