The stock of Globe Telecom (OTCPK:GTMEY, 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 $38.975 per share and the market cap of $5.2 billion, Globe Telecom stock shows every sign of being fairly valued. GF Value for Globe Telecom is shown in the chart below.
Because Globe Telecom is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which averaged 9.3% over the past three years and is estimated to grow 3.19% annually over the next three to 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. Globe Telecom has a cash-to-debt ratio of 0.19, which is worse than 66% of the companies in Telecommunication Services industry. The overall financial strength of Globe Telecom is 4 out of 10, which indicates that the financial strength of Globe Telecom is poor. This is the debt and cash of Globe Telecom 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. Globe Telecom has been profitable 10 years over the past 10 years. During the past 12 months, the company had revenues of $3.4 billion and earnings of $3.063 a share. Its operating margin of 26.33% better than 89% of the companies in Telecommunication Services industry. Overall, GuruFocus ranks Globe Telecom's profitability as strong. This is the revenue and net income of Globe Telecom 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 performance of a company's stock. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Globe Telecom is 9.3%, which ranks better than 78% of the companies in Telecommunication Services industry. The 3-year average EBITDA growth rate is 13.9%, which ranks better than 66% of the companies in Telecommunication Services 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, Globe Telecom's ROIC is 9.35 while its WACC came in at 4.18. The historical ROIC vs WACC comparison of Globe Telecom is shown below:
In closing, Globe Telecom (OTCPK:GTMEY, 30-year Financials) stock shows every sign of being fairly valued. The company's financial condition is poor and its profitability is strong. Its growth ranks better than 66% of the companies in Telecommunication Services industry. To learn more about Globe Telecom stock, you can check out its 30-year Financials here.
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