The stock of iCollege (ASX:ICT, 30-year Financials) gives every indication of being 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 AUD 0.135 per share and the market cap of AUD 81.4 million, iCollege stock is estimated to be modestly overvalued. GF Value for iCollege is shown in the chart below.
Because iCollege is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth, which averaged 17.3% over the past five years.
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. iCollege has a cash-to-debt ratio of 1.68, which which ranks in the middle range of the companies in Education industry. The overall financial strength of iCollege is 4 out of 10, which indicates that the financial strength of iCollege is poor. This is the debt and cash of iCollege over the past years:
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. iCollege has been profitable 1 over the past 10 years. Over the past twelve months, the company had a revenue of AUD 11.7 million and loss of AUD 0.003 a share. Its operating margin is -23.36%, which ranks worse than 85% of the companies in Education industry. Overall, the profitability of iCollege is ranked 2 out of 10, which indicates poor profitability. This is the revenue and net income of iCollege 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. iCollege's 3-year average revenue growth rate is better than 75% of the companies in Education industry. iCollege's 3-year average EBITDA growth rate is 55%, which ranks better than 91% of the companies in Education 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, iCollege's ROIC was -28.62, while its WACC came in at 3.05. The historical ROIC vs WACC comparison of iCollege is shown below:
In summary, the stock of iCollege (ASX:ICT, 30-year Financials) appears to be modestly overvalued. The company's financial condition is poor and its profitability is poor. Its growth ranks better than 91% of the companies in Education industry. To learn more about iCollege stock, you can check out its 30-year Financials here.
To find out the high quality companies that may deliever above average returns, please check out GuruFocus High Quality Low Capex Screener.