The stock of Capcom Co (OTCPK:CCOEF, 30-year Financials) shows every sign 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 $32.91 per share and the market cap of $7 billion, Capcom Co stock shows every sign of being significantly overvalued. GF Value for Capcom Co is shown in the chart below.
Because Capcom Co is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which is estimated to grow 2.02% annually over the next three to five years.
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. Capcom Co has a cash-to-debt ratio of 10.65, which is in the middle range of the companies in Interactive Media industry. The overall financial strength of Capcom Co is 8 out of 10, which indicates that the financial strength of Capcom Co is strong. This is the debt and cash of Capcom Co 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. Capcom Co has been profitable 10 years over the past 10 years. During the past 12 months, the company had revenues of $880.3 million and earnings of $0.9 a share. Its operating margin of 30.74% better than 87% of the companies in Interactive Media industry. Overall, GuruFocus ranks Capcom Co's profitability as strong. This is the revenue and net income of Capcom Co over the past years:
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Capcom Co is -1%, which ranks in the middle range of the companies in Interactive Media industry. The 3-year average EBITDA growth is 12.8%, which ranks in the middle range of the companies in Interactive Media 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, Capcom Co's return on invested capital is 31.37, and its cost of capital is 1.40. The historical ROIC vs WACC comparison of Capcom Co is shown below:
In conclusion, The stock of Capcom Co (OTCPK:CCOEF, 30-year Financials) is estimated 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 Interactive Media industry. To learn more about Capcom Co stock, you can check out its 30-year Financials here.
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