The stock of ams AG (OTCPK:AMSSY, 30-year Financials) shows every sign of being possible value trap, 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 $9.695 per share and the market cap of $5.1 billion, ams AG stock is estimated to be possible value trap. GF Value for ams AG is shown in the chart below.
The reason we think that ams AG stock might be a value trap is because ams AG has an Altman Z-score of 1.02, which indicates that the financial condition of the company is in the distressed zone and implies a higher risk of bankruptcy. An Altman Z-score of above 2.99 would be better, indicating safe financial conditions. To learn more about how the Z-score measures the financial risk of the company, please go here.
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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. ams AG has a cash-to-debt ratio of 0.49, which which ranks worse than 76% of the companies in Semiconductors industry. The overall financial strength of ams AG is 3 out of 10, which indicates that the financial strength of ams AG is poor. This is the debt and cash of ams AG 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. ams AG has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of $5.2 billion and earnings of $0.061 a share. Its operating margin is 3.07%, which ranks in the middle range of the companies in Semiconductors industry. Overall, GuruFocus ranks the profitability of ams AG at 9 out of 10, which indicates strong profitability. This is the revenue and net income of ams AG 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 ams AG is 18.9%, which ranks better than 85% of the companies in Semiconductors industry. The 3-year average EBITDA growth is 10.6%, which ranks in the middle range 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, ams AG's ROIC was 2.42, while its WACC came in at 10.58. The historical ROIC vs WACC comparison of ams AG is shown below:
Overall, ams AG (OTCPK:AMSSY, 30-year Financials) stock is believed to be possible value trap. The company's financial condition is poor and its profitability is strong. Its growth ranks in the middle range of the companies in Semiconductors industry. To learn more about ams AG stock, you can check out its 30-year Financials here.
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