The stock of Nam Tai Property (NYSE:NTP, 30-year Financials) shows every sign of being possible value trap, 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 $12.08 per share and the market cap of $473.5 million, Nam Tai Property stock appears to be possible value trap. GF Value for Nam Tai Property is shown in the chart below.
The reason we think that Nam Tai Property stock might be a value trap is because Nam Tai Property has an Altman Z-score of 1.60, which indicates that the financial condition of the company is in the distressed zone and implies a higher risk of bankruptcy. An Altman Z-score of above 2.99 would be better, indicating safe financial conditions. To learn more about how the Z-score measures the financial risk of the company, please go here.
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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. Nam Tai Property has a cash-to-debt ratio of 1.59, which ranks better than 78% of the companies in Real Estate industry. Based on this, GuruFocus ranks Nam Tai Property's financial strength as 6 out of 10, suggesting fair balance sheet. This is the debt and cash of Nam Tai Property 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. Nam Tai Property has been profitable 5 over the past 10 years. Over the past twelve months, the company had a revenue of $71.2 million and earnings of $0.2 a share. Its operating margin is 29.41%, which ranks better than 72% of the companies in Real Estate industry. Overall, GuruFocus ranks the profitability of Nam Tai Property at 4 out of 10, which indicates poor profitability. This is the revenue and net income of Nam Tai Property 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. Nam Tai Property's 3-year average revenue growth rate is better than 99% of the companies in Real Estate industry. Nam Tai Property's 3-year average EBITDA growth rate is 71.6%, which ranks better than 95% of the companies in Real Estate 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, Nam Tai Property's return on invested capital is 3.87, and its cost of capital is 6.06. The historical ROIC vs WACC comparison of Nam Tai Property is shown below:
In short, The stock of Nam Tai Property (NYSE:NTP, 30-year Financials) is estimated to be possible value trap. The company's financial condition is fair and its profitability is poor. Its growth ranks better than 95% of the companies in Real Estate industry. To learn more about Nam Tai Property stock, you can check out its 30-year Financials here.
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