The stock of Spotify Technology SA (NYSE:SPOT, 30-year Financials) shows every sign of being fairly valued, 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 $239.41 per share and the market cap of $45.7 billion, Spotify Technology SA stock shows every sign of being fairly valued. GF Value for Spotify Technology SA is shown in the chart below.
Because Spotify Technology SA is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which averaged 23.4% over the past three years and is estimated to grow 17.13% 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. Spotify Technology SA has a cash-to-debt ratio of 1.70, which which ranks worse than 71% of the companies in Interactive Media industry. The overall financial strength of Spotify Technology SA is 6 out of 10, which indicates that the financial strength of Spotify Technology SA is fair. This is the debt and cash of Spotify Technology SA 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. Spotify Technology SA has been profitable 0 over the past 10 years. Over the past twelve months, the company had a revenue of $9.6 billion and loss of $3.935 a share. Its operating margin is -3.14%, which ranks in the middle range of the companies in Interactive Media industry. Overall, the profitability of Spotify Technology SA is ranked 3 out of 10, which indicates poor profitability. This is the revenue and net income of Spotify Technology SA 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 Spotify Technology SA is 23.4%, which ranks better than 72% of the companies in Interactive Media industry. The 3-year average EBITDA growth rate is 23.3%, which ranks in the middle range of the companies in Interactive Media 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, Spotify Technology SA's return on invested capital is -5.35, and its cost of capital is 8.58.
In conclusion, the stock of Spotify Technology SA (NYSE:SPOT, 30-year Financials) is believed to be fairly valued. The company's financial condition is fair and its profitability is poor. Its growth ranks in the middle range of the companies in Interactive Media industry. To learn more about Spotify Technology SA stock, you can check out its 30-year Financials here.
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