The stock of Momo (NAS:MOMO, 30-year Financials) is estimated to be significantly 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 $14.66 per share and the market cap of $3 billion, Momo stock gives every indication of being significantly undervalued. GF Value for Momo is shown in the chart below.
Because Momo is significantly undervalued, the long-term return of its stock is likely to be much higher than its business growth, which averaged 16.1% over the past three years and is estimated to grow 6.54% annually over the next three to five years.
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Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. Momo has a cash-to-debt ratio of 2.22, which which ranks worse than 66% of the companies in Interactive Media industry. The overall financial strength of Momo is 7 out of 10, which indicates that the financial strength of Momo is fair. This is the debt and cash of Momo 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. Momo has been profitable 6 years over the past 10 years. During the past 12 months, the company had revenues of $2.2 billion and earnings of $1.411 a share. Its operating margin of 16.80% better than 71% of the companies in Interactive Media industry. Overall, GuruFocus ranks Momo's profitability as fair. This is the revenue and net income of Momo 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 stock performance of a company. A faster growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Momo is 16.1%, which ranks in the middle range of the companies in Interactive Media industry. The 3-year average EBITDA growth rate is 5.5%, which ranks in the middle range 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, Momo's return on invested capital is 19.31, and its cost of capital is 9.67. The historical ROIC vs WACC comparison of Momo is shown below:
Overall, The stock of Momo (NAS:MOMO, 30-year Financials) shows every sign of being significantly undervalued. The company's financial condition is fair and its profitability is fair. Its growth ranks in the middle range of the companies in Interactive Media industry. To learn more about Momo stock, you can check out its 30-year Financials here.
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