The stock of cbdMD (AMEX:YCBD, 30-year Financials) gives every indication of being 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 $3.68 per share and the market cap of $204.7 million, cbdMD stock shows every sign of being fairly valued. GF Value for cbdMD is shown in the chart below.
Because cbdMD is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which averaged 15.8% over the past three years and is estimated to grow 38.00% annually over the next three to five years.
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Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Thus, it is important to carefully review the financial strength of a company before deciding whether to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company. cbdMD has a cash-to-debt ratio of 3.38, which is better than 68% of the companies in Drug Manufacturers industry. GuruFocus ranks the overall financial strength of cbdMD at 6 out of 10, which indicates that the financial strength of cbdMD is fair. This is the debt and cash of cbdMD 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. cbdMD has been profitable 1 over the past 10 years. Over the past twelve months, the company had a revenue of $44.1 million and loss of $0.13 a share. Its operating margin is -30.02%, which ranks worse than 74% of the companies in Drug Manufacturers industry. Overall, GuruFocus ranks the profitability of cbdMD at 1 out of 10, which indicates poor profitability. This is the revenue and net income of cbdMD 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 cbdMD is 15.8%, which ranks better than 75% of the companies in Drug Manufacturers industry. The 3-year average EBITDA growth rate is -52.6%, which ranks in the bottom 10% of the companies in Drug Manufacturers 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, cbdMD's return on invested capital is -15.26, and its cost of capital is 11.86. The historical ROIC vs WACC comparison of cbdMD is shown below:
To conclude, cbdMD (AMEX:YCBD, 30-year Financials) stock appears to be fairly valued. The company's financial condition is fair and its profitability is poor. Its growth ranks in the bottom 10% of the companies in Drug Manufacturers industry. To learn more about cbdMD stock, you can check out its 30-year Financials here.
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