The stock of Kandi Technologies Group (NAS:KNDI, 30-year Financials) shows every sign of being significantly 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 $5.98 per share and the market cap of $450.8 million, Kandi Technologies Group stock is believed to be significantly overvalued. GF Value for Kandi Technologies Group is shown in the chart below.
Because Kandi Technologies Group is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth.
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It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. Kandi Technologies Group has a cash-to-debt ratio of 1544.33, which is better than 94% of the companies in Vehicles & Parts industry. The overall financial strength of Kandi Technologies Group is 8 out of 10, which indicates that the financial strength of Kandi Technologies Group is strong. This is the debt and cash of Kandi Technologies Group 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. Kandi Technologies Group has been profitable 4 over the past 10 years. Over the past twelve months, the company had a revenue of $76.9 million and loss of $0.19 a share. Its operating margin is -15.98%, which ranks in the bottom 10% of the companies in Vehicles & Parts industry. Overall, GuruFocus ranks the profitability of Kandi Technologies Group at 3 out of 10, which indicates poor profitability. This is the revenue and net income of Kandi Technologies Group 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. Kandi Technologies Group's 3-year average revenue growth rate is in the bottom 10% of the companies in Vehicles & Parts industry. Kandi Technologies Group's 3-year average EBITDA growth rate is 50.5%, which ranks better than 96% of the companies in Vehicles & Parts industry.
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average 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. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Kandi Technologies Group's return on invested capital is -2.91, and its cost of capital is 14.68. The historical ROIC vs WACC comparison of Kandi Technologies Group is shown below:
To conclude, the stock of Kandi Technologies Group (NAS:KNDI, 30-year Financials) gives every indication of being significantly overvalued. The company's financial condition is strong and its profitability is poor. Its growth ranks better than 96% of the companies in Vehicles & Parts industry. To learn more about Kandi Technologies Group stock, you can check out its 30-year Financials here.
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