CSG Systems International Stock Appears To Be Fairly Valued

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Apr 06, 2021
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The stock of CSG Systems International (NAS:CSGS, 30-year Financials) appears 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 $46.09 per share and the market cap of $1.5 billion, CSG Systems International stock is believed to be fairly valued. GF Value for CSG Systems International is shown in the chart below.

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Because CSG Systems International is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which averaged 8.5% 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. CSG Systems International has a cash-to-debt ratio of 0.51, which is worse than 79% of the companies in Software industry. The overall financial strength of CSG Systems International is 5 out of 10, which indicates that the financial strength of CSG Systems International is fair. This is the debt and cash of CSG Systems International over the past years:

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Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. CSG Systems International has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $990.5 million and earnings of $1.81 a share. Its operating margin is 11.19%, which ranks better than 72% of the companies in Software industry. Overall, the profitability of CSG Systems International is ranked 8 out of 10, which indicates strong profitability. This is the revenue and net income of CSG Systems International over the past years:

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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. CSG Systems International's 3-year average revenue growth rate is in the middle range of the companies in Software industry. CSG Systems International's 3-year average EBITDA growth rate is 5%, which ranks in the middle range of the companies in Software 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, CSG Systems International's return on invested capital is 7.26, and its cost of capital is 6.23. The historical ROIC vs WACC comparison of CSG Systems International is shown below:

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In closing, the stock of CSG Systems International (NAS:CSGS, 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 CSG Systems International stock, you can check out its 30-year Financials here.

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