Akamai Technologies Inc (AKAM, Financial) recently experienced a significant daily loss of 11%, culminating in a 3-month decline of 28.94%. Despite these figures, the company's Earnings Per Share (EPS) stands at 4.02. This analysis seeks to determine whether Akamai Technologies is indeed modestly undervalued as suggested by the GF Value, which currently estimates its fair value at $118.31.
Company Overview
Akamai Technologies operates a robust content delivery network (CDN), enhancing the speed, security, and quality with which its customers deliver content to their end-users. With over 325,000 servers spread across more than 1,000 cities worldwide, Akamai not only dominates the CDN space but also offers substantial services in security and cloud computing. Currently, the company's market cap stands at $13.90 billion, with sales reaching $3.90 billion and an operating margin of 18.44%.
Understanding GF Value
The GF Value is a proprietary measure reflecting the intrinsic value of a stock, calculated based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. For Akamai Technologies, the GF Value suggests a fair market value of $118.31 per share, significantly above the current price of $91.19. This discrepancy indicates that Akamai Technologies (AKAM, Financial) is modestly undervalued, presenting a potentially higher future return given its current market position.
Financial Strength and Stability
Akamai Technologies' financial strength is crucial for assessing its risk of capital loss. The company's cash-to-debt ratio is 0.19, positioning it lower than 86.53% of its peers in the software industry. Despite this, its overall financial strength is rated 6 out of 10, indicating a fair level of financial health.
Profitability and Growth Prospects
Akamai has maintained profitability over the past decade, with a strong operating margin of 18.44%, ranking better than 87.53% of companies in the software industry. However, its growth rates, including a 3-year average annual revenue growth rate of 8.2%, position it below more than half of its industry counterparts.
ROIC vs. WACC
The comparison between Return on Invested Capital (ROIC) and Weighted Average Cost of Capital (WACC) further elucidates Akamai's value creation capability. Currently, Akamai's ROIC of 7.85 is slightly below its WACC of 8, suggesting challenges in generating excess returns over its capital costs.
Conclusion
In conclusion, while Akamai Technologies (AKAM, Financial) exhibits strong profitability and a solid market position, its current valuation below the GF Value suggests it is modestly undervalued. Investors should consider this potential opportunity for higher long-term returns. For more detailed financial insights into Akamai Technologies, explore its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
