The stock of Verb Technology Co (NAS:VERB, 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 $1.1873 per share and the market cap of $74.1 million, Verb Technology Co stock shows every sign of being possible value trap. GF Value for Verb Technology Co is shown in the chart below.
The reason we think that Verb Technology Co stock might be a value trap is because Verb Technology Co has an Altman Z-score of -4.11, 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.
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. Verb Technology Co has a cash-to-debt ratio of 0.30, which which ranks worse than 87% of the companies in Software industry. The overall financial strength of Verb Technology Co is 2 out of 10, which indicates that the financial strength of Verb Technology Co is poor. This is the debt and cash of Verb Technology Co 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. Verb Technology Co has been profitable 0 years over the past 10 years. During the past 12 months, the company had revenues of $10 million and loss of $0.81 a share. Its operating margin of -248.24% in the bottom 10% of the companies in Software industry. Overall, GuruFocus ranks Verb Technology Co's profitability as poor. This is the revenue and net income of Verb Technology Co 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. Verb Technology Co's 3-year average revenue growth rate is better than 100% of the companies in Software industry. Verb Technology Co's 3-year average EBITDA growth rate is 11.3%, 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, Verb Technology Co's return on invested capital is -68.41, and its cost of capital is 12.42. The historical ROIC vs WACC comparison of Verb Technology Co is shown below:
To conclude, the stock of Verb Technology Co (NAS:VERB, 30-year Financials) is believed to be possible value trap. The company's financial condition is poor and its profitability is poor. Its growth ranks in the middle range of the companies in Software industry. To learn more about Verb Technology Co stock, you can check out its 30-year Financials here.
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