The stock of Card Factory PLC (FRA:0CT, 30-year Financials) appears to be possible value trap, 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 €0.91 per share and the market cap of €315 million, Card Factory PLC stock gives every indication of being possible value trap. GF Value for Card Factory PLC is shown in the chart below.
The reason we think that Card Factory PLC stock might be a value trap is because Card Factory PLC has an Altman Z-score of 1.67, which indicates that the financial condition of the company is in the distressed zone and implies a higher risk of bankruptcy. An Altman Z-score of above 2.99 would be better, indicating safe financial conditions. To learn more about how the Z-score measures the financial risk of the company, please go here.
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Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. Card Factory PLC has a cash-to-debt ratio of 0.10, which which ranks worse than 86% of the companies in the industry of Retail - Cyclical. The overall financial strength of Card Factory PLC is 4 out of 10, which indicates that the financial strength of Card Factory PLC is poor. This is the debt and cash of Card Factory PLC 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. Card Factory PLC has been profitable 9 years over the past 10 years. During the past 12 months, the company had revenues of €412.5 million and earnings of €0.053 a share. Its operating margin of 8.36% better than 78% of the companies in the industry of Retail - Cyclical. Overall, GuruFocus ranks Card Factory PLC's profitability as fair. This is the revenue and net income of Card Factory PLC over the past years:
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. Card Factory PLC's 3-year average revenue growth rate is in the middle range of the companies in the industry of Retail - Cyclical. Card Factory PLC's 3-year average EBITDA growth rate is 8.5%, which ranks in the middle range of the companies in the industry of Retail - Cyclical.
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, Card Factory PLC's ROIC is 4.20 while its WACC came in at 9.86. The historical ROIC vs WACC comparison of Card Factory PLC is shown below:
In closing, The stock of Card Factory PLC (FRA:0CT, 30-year Financials) is estimated to be possible value trap. The company's financial condition is poor and its profitability is fair. Its growth ranks in the middle range of the companies in the industry of Retail - Cyclical. To learn more about Card Factory PLC stock, you can check out its 30-year Financials here.
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