The stock of Fullnet Communications (OTCPK:FULO, 30-year Financials) is estimated to be 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 $0.4999 per share and the market cap of $8.3 million, Fullnet Communications stock is estimated to be significantly overvalued. GF Value for Fullnet Communications is shown in the chart below.
Because Fullnet Communications is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 16.3% over the past five years.
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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. Fullnet Communications has a cash-to-debt ratio of 2.73, which ranks better than 79% of the companies in Telecommunication Services industry. Based on this, GuruFocus ranks Fullnet Communications's financial strength as 4 out of 10, suggesting poor balance sheet. This is the debt and cash of Fullnet Communications 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. Fullnet Communications has been profitable 5 years over the past 10 years. During the past 12 months, the company had revenues of $3.5 million and earnings of $0.072 a share. Its operating margin of 20.87% better than 82% of the companies in Telecommunication Services industry. Overall, GuruFocus ranks Fullnet Communications's profitability as poor. This is the revenue and net income of Fullnet Communications over the past years:
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Fullnet Communications is 16.3%, which ranks better than 87% of the companies in Telecommunication Services industry. The 3-year average EBITDA growth is 81.7%, which ranks better than 97% of the companies in Telecommunication Services 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, Fullnet Communications's return on invested capital is 48.17, and its cost of capital is 16.55. The historical ROIC vs WACC comparison of Fullnet Communications is shown below:
In conclusion, The stock of Fullnet Communications (OTCPK:FULO, 30-year Financials) is estimated to be significantly overvalued. The company's financial condition is poor and its profitability is poor. Its growth ranks better than 97% of the companies in Telecommunication Services industry. To learn more about Fullnet Communications stock, you can check out its 30-year Financials here.
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