The stock of Liberty Global PLC (NAS:LBTYK, 30-year Financials) gives every indication of being modestly undervalued, 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 $27.42 per share and the market cap of $15.5 billion, Liberty Global PLC stock is estimated to be modestly undervalued. GF Value for Liberty Global PLC is shown in the chart below.
Because Liberty Global PLC is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth, which averaged 14.4% over the past 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. Liberty Global PLC has a cash-to-debt ratio of 0.18, which is worse than 81% of the companies in the industry of Media - Diversified. GuruFocus ranks the overall financial strength of Liberty Global PLC at 3 out of 10, which indicates that the financial strength of Liberty Global PLC is poor. This is the debt and cash of Liberty Global PLC 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. Liberty Global PLC has been profitable 4 years over the past 10 years. During the past 12 months, the company had revenues of $12.7 billion and loss of $1.94 a share. Its operating margin of 20.24% better than 87% of the companies in the industry of Media - Diversified. Overall, GuruFocus ranks Liberty Global PLC’s profitability as fair. This is the revenue and net income of Liberty Global PLC 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. Liberty Global PLC’s 3-year average revenue growth rate is better than 84% of the companies in the industry of Media - Diversified. Liberty Global PLC’s 3-year average EBITDA growth rate is -6.5%, which ranks in the middle range of the companies in the industry of Media - Diversified.
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, Liberty Global PLC’s return on invested capital is 4.63, and its cost of capital is 7.00. The historical ROIC vs WACC comparison of Liberty Global PLC is shown below:
To conclude, the stock of Liberty Global PLC (NAS:LBTYK, 30-year Financials) is believed to be modestly undervalued. The company's financial condition is poor and its profitability is fair. Its growth ranks in the middle range of the companies in the industry of Media - Diversified. To learn more about Liberty Global PLC stock, you can check out its 30-year Financials here.
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