The stock of Dialog Semiconductor PLC (OTCPK:DLGNF, 30-year Financials) gives every indication of being 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 $77.3 per share and the market cap of $5.5 billion, Dialog Semiconductor PLC stock appears to be significantly overvalued. GF Value for Dialog Semiconductor PLC is shown in the chart below.
Because Dialog Semiconductor PLC is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 9.4% over the past five years.
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It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. Dialog Semiconductor PLC has a cash-to-debt ratio of 10.44, which is better than 75% of the companies in Semiconductors industry. The overall financial strength of Dialog Semiconductor PLC is 9 out of 10, which indicates that the financial strength of Dialog Semiconductor PLC is strong. This is the debt and cash of Dialog Semiconductor PLC 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. Dialog Semiconductor PLC has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $1.3 billion and earnings of $0.98 a share. Its operating margin is 11.24%, which ranks in the middle range of the companies in Semiconductors industry. Overall, GuruFocus ranks the profitability of Dialog Semiconductor PLC at 8 out of 10, which indicates strong profitability. This is the revenue and net income of Dialog Semiconductor PLC over the past years:
Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term stock performance of a company. A faster growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Dialog Semiconductor PLC is 9.4%, which ranks better than 68% of the companies in Semiconductors industry. The 3-year average EBITDA growth rate is 9.1%, which ranks in the middle range of the companies in Semiconductors 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, Dialog Semiconductor PLC's return on invested capital is 8.34, and its cost of capital is 9.43. The historical ROIC vs WACC comparison of Dialog Semiconductor PLC is shown below:
To conclude, Dialog Semiconductor PLC (OTCPK:DLGNF, 30-year Financials) stock is believed to be significantly overvalued. The company's financial condition is strong and its profitability is strong. Its growth ranks in the middle range of the companies in Semiconductors industry. To learn more about Dialog Semiconductor PLC stock, you can check out its 30-year Financials here.
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