The stock of Liberty Global PLC (NAS:LBTYA, 30-year Financials) is believed 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 $27.72 per share and the market cap of $15.7 billion, Liberty Global PLC stock is estimated to be modestly undervalued. GF Value for Liberty Global PLC is shown in the chart below.
Because Liberty Global PLC is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth, which averaged 14.4% over the past five years.
Link: These companies may deliever higher future returns at reduced risk.
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. Liberty Global PLC has a cash-to-debt ratio of 0.20, which is worse than 79% of the companies in the industry of Media - Diversified. GuruFocus ranks the overall financial strength of Liberty Global PLC at 3 out of 10, which indicates that the financial strength of Liberty Global PLC is poor. This is the debt and cash of Liberty Global PLC over the past years:
It poses less risk to invest in profitable companies, especially those that have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. Liberty Global PLC has been profitable 4 over the past 10 years. Over the past twelve months, the company had a revenue of $12.7 billion and loss of $1.94 a share. Its operating margin is 18.50%, which ranks better than 86% of the companies in the industry of Media - Diversified. Overall, GuruFocus ranks the profitability of Liberty Global PLC at 5 out of 10, which indicates fair profitability. This is the revenue and net income of Liberty Global PLC 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 Liberty Global PLC is 14.4%, which ranks better than 83% of the companies in the industry of Media - Diversified. The 3-year average EBITDA growth is -6.5%, which ranks in the middle range of the companies in the industry of Media - Diversified.
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, Liberty Global PLC's ROIC was 4.13, while its WACC came in at 6.88. The historical ROIC vs WACC comparison of Liberty Global PLC is shown below:
To conclude, Liberty Global PLC (NAS:LBTYA, 30-year Financials) stock is estimated to be modestly undervalued. The company's financial condition is poor and its profitability is fair. Its growth ranks in the middle range of the companies in the industry of Media - Diversified. To learn more about Liberty Global PLC stock, you can check out its 30-year Financials here.
To find out the high quality companies that may deliever above average returns, please check out GuruFocus High Quality Low Capex Screener.
