SharpSpring Stock Is Estimated To Be Modestly Overvalued

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GF Value
Apr 10, 2021
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The stock of SharpSpring (NAS:SHSP, 30-year Financials) is estimated to be modestly 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 $15.79 per share and the market cap of $202.4 million, SharpSpring stock appears to be modestly overvalued. GF Value for SharpSpring is shown in the chart below.

SharpSpring GF Value Chart

Because SharpSpring is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth, which averaged 16.3% over the past three years and is estimated to grow 20.08% 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. SharpSpring has a cash-to-debt ratio of 2.05, which ranks in the middle range of the companies in Software industry. Based on this, GuruFocus ranks SharpSpring's financial strength as 5 out of 10, suggesting fair balance sheet. This is the debt and cash of SharpSpring over the past years:

debt and cash

It is less risky to invest in profitable companies, especially those with consistent profitability over long term. A company with high profit margins is usually a safer investment than those with low profit margins. SharpSpring has been profitable 4 over the past 10 years. Over the past twelve months, the company had a revenue of $29.3 million and loss of $0.5 a share. Its operating margin is -22.55%, which ranks worse than 77% of the companies in Software industry. Overall, the profitability of SharpSpring is ranked 3 out of 10, which indicates poor profitability. This is the revenue and net income of SharpSpring over the past years:

Revnue and Net Income

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 stock performance of a company. A faster growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of SharpSpring is 16.3%, which ranks better than 73% of the companies in Software industry. The 3-year average EBITDA growth rate is 16.3%, which ranks in the middle range of the companies in Software industry.

Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted 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 ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, SharpSpring's ROIC was -17.91, while its WACC came in at 13.66. The historical ROIC vs WACC comparison of SharpSpring is shown below:

ROIC vs WACC

In closing, SharpSpring (NAS:SHSP, 30-year Financials) stock shows every sign of being modestly overvalued. The company's financial condition is fair and its profitability is poor. Its growth ranks in the middle range of the companies in Software industry. To learn more about SharpSpring stock, you can check out its 30-year Financials here.

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