The stock of Citrix Systems (NAS:CTXS, 30-year Financials) is estimated to be fairly valued, 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 $138.39 per share and the market cap of $17 billion, Citrix Systems stock appears to be fairly valued. GF Value for Citrix Systems is shown in the chart below.
Because Citrix Systems is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which averaged 12.2% over the past three years and is estimated to grow 6.97% annually over the next three to five years.
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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. Citrix Systems has a cash-to-debt ratio of 0.46, which ranks worse than 81% of the companies in Software industry. Based on this, GuruFocus ranks Citrix Systems's financial strength as 5 out of 10, suggesting fair balance sheet. This is the debt and cash of Citrix Systems 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. Citrix Systems has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of $3.2 billion and earnings of $4 a share. Its operating margin is 19.18%, which ranks better than 87% of the companies in Software industry. Overall, GuruFocus ranks the profitability of Citrix Systems at 9 out of 10, which indicates strong profitability. This is the revenue and net income of Citrix Systems 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. Citrix Systems's 3-year average revenue growth rate is in the middle range of the companies in Software industry. Citrix Systems's 3-year average EBITDA growth rate is 7.1%, which ranks in the middle range of the companies in Software industry.
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). 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. If the return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, Citrix Systems's ROIC is 13.06 while its WACC came in at 2.49. The historical ROIC vs WACC comparison of Citrix Systems is shown below:
To conclude, The stock of Citrix Systems (NAS:CTXS, 30-year Financials) is believed to be fairly valued. The company's financial condition is fair and its profitability is strong. Its growth ranks in the middle range of the companies in Software industry. To learn more about Citrix Systems stock, you can check out its 30-year Financials here.
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