The stock of Viasat (NAS:VSAT, 30-year Financials) is believed 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 $46.86 per share and the market cap of $3.2 billion, Viasat stock is believed to be possible value trap. GF Value for Viasat is shown in the chart below.
The reason we think that Viasat stock might be a value trap is because Viasat has an Altman Z-score of 1.27, 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.
Since investing in companies with low financial strength could result in permanent capital loss, investors must carefully review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. Viasat has a cash-to-debt ratio of 0.15, which ranks in the bottom 10% of the companies in Hardware industry. Based on this, GuruFocus ranks Viasat's financial strength as 4 out of 10, suggesting poor balance sheet. This is the debt and cash of Viasat over the past years:
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Viasat has been profitable 5 over the past 10 years. Over the past twelve months, the company had a revenue of $2.3 billion and loss of $0.045 a share. Its operating margin is 1.92%, which ranks in the middle range of the companies in Hardware industry. Overall, the profitability of Viasat is ranked 4 out of 10, which indicates poor profitability. This is the revenue and net income of Viasat 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 Viasat is 8.7%, which ranks better than 72% of the companies in Hardware industry. The 3-year average EBITDA growth rate is 5.3%, which ranks in the middle range of the companies in Hardware 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, Viasat's ROIC was 0.80, while its WACC came in at 8.21. The historical ROIC vs WACC comparison of Viasat is shown below:
Overall, the stock of Viasat (NAS:VSAT, 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 Hardware industry. To learn more about Viasat stock, you can check out its 30-year Financials here.
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