The stock of MongoDB (NAS:MDB, 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 $296.8099 per share and the market cap of $18.2 billion, MongoDB stock gives every indication of being modestly overvalued. GF Value for MongoDB is shown in the chart below.
Because MongoDB is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth, which averaged 12.7% over the past three years and is estimated to grow 28.67% annually over the next three to 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. MongoDB has a cash-to-debt ratio of 0.98, which ranks worse than 70% of the companies in Software industry. Based on this, GuruFocus ranks MongoDB's financial strength as 4 out of 10, suggesting poor balance sheet. This is the debt and cash of MongoDB 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. MongoDB has been profitable 0 over the past 10 years. Over the past twelve months, the company had a revenue of $590.4 million and loss of $4.51 a share. Its operating margin is -35.45%, which ranks worse than 82% of the companies in Software industry. Overall, the profitability of MongoDB is ranked 2 out of 10, which indicates poor profitability. This is the revenue and net income of MongoDB 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. MongoDB's 3-year average revenue growth rate is better than 66% of the companies in Software industry. MongoDB's 3-year average EBITDA growth rate is 2.5%, which ranks worse than 67% of the companies in Software 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, MongoDB's ROIC was -44.27, while its WACC came in at 7.78. The historical ROIC vs WACC comparison of MongoDB is shown below:
In summary, the stock of MongoDB (NAS:MDB, 30-year Financials) shows every sign of being modestly overvalued. The company's financial condition is poor and its profitability is poor. Its growth ranks worse than 67% of the companies in Software industry. To learn more about MongoDB stock, you can check out its 30-year Financials here.
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