The stock of Weibo (NAS:WB, 30-year Financials) is estimated to be modestly undervalued, 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 $49.48 per share and the market cap of $11.2 billion, Weibo stock is believed to be modestly undervalued. GF Value for Weibo is shown in the chart below.
Because Weibo is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth, which averaged 38.4% over the past three years and is estimated to grow 8.32% annually over the next three to five years.
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Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Thus, it is important to carefully review the financial strength of a company before deciding whether to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company. Weibo has a cash-to-debt ratio of 1.44, which is worse than 73% of the companies in Interactive Media industry. GuruFocus ranks the overall financial strength of Weibo at 5 out of 10, which indicates that the financial strength of Weibo is fair. This is the debt and cash of Weibo 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. Weibo has been profitable 5 years over the past 10 years. During the past 12 months, the company had revenues of $1.7 billion and earnings of $1.37 a share. Its operating margin of 29.99% better than 86% of the companies in Interactive Media industry. Overall, GuruFocus ranks Weibo's profitability as fair. This is the revenue and net income of Weibo over the past years:
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 performance of a company's stock. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Weibo is 38.4%, which ranks better than 84% of the companies in Interactive Media industry. The 3-year average EBITDA growth rate is 61.4%, which ranks better than 88% of the companies in Interactive Media 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, Weibo's return on invested capital is 21.56, and its cost of capital is 7.33. The historical ROIC vs WACC comparison of Weibo is shown below:
Overall, The stock of Weibo (NAS:WB, 30-year Financials) shows every sign of being modestly undervalued. The company's financial condition is fair and its profitability is fair. Its growth ranks better than 88% of the companies in Interactive Media industry. To learn more about Weibo stock, you can check out its 30-year Financials here.
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