The stock of Kulicke & Soffa Industries (NAS:KLIC, 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 $50.69 per share and the market cap of $3.1 billion, Kulicke & Soffa Industries stock shows every sign of being significantly overvalued. GF Value for Kulicke & Soffa Industries is shown in the chart below.
Because Kulicke & Soffa Industries is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth.
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. Kulicke & Soffa Industries has a cash-to-debt ratio of 23.44, which ranks better than 82% of the companies in Semiconductors industry. Based on this, GuruFocus ranks Kulicke & Soffa Industries's financial strength as 8 out of 10, suggesting strong balance sheet. This is the debt and cash of Kulicke & Soffa Industries 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. Kulicke & Soffa Industries has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $746.7 million and earnings of $1.39 a share. Its operating margin is 13.28%, which ranks better than 70% of the companies in Semiconductors industry. Overall, the profitability of Kulicke & Soffa Industries is ranked 8 out of 10, which indicates strong profitability. This is the revenue and net income of Kulicke & Soffa Industries 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 Kulicke & Soffa Industries is -4.3%, which ranks worse than 69% of the companies in Semiconductors industry. The 3-year average EBITDA growth rate is -10.4%, which ranks worse than 80% of the companies in Semiconductors 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, Kulicke & Soffa Industries's ROIC was 19.30, while its WACC came in at 8.87. The historical ROIC vs WACC comparison of Kulicke & Soffa Industries is shown below:
In short, Kulicke & Soffa Industries (NAS:KLIC, 30-year Financials) stock is estimated to be significantly overvalued. The company's financial condition is strong and its profitability is strong. Its growth ranks worse than 80% of the companies in Semiconductors industry. To learn more about Kulicke & Soffa Industries stock, you can check out its 30-year Financials here.
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