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Elevate Credit Stock Appears To Be Modestly Overvalued

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May 17, 2021
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The stock of Elevate Credit (NYSE:ELVT, 30-year Financials) appears to be modestly 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 $3.56 per share and the market cap of $127.3 million, Elevate Credit stock shows every sign of being modestly overvalued. GF Value for Elevate Credit is shown in the chart below.


Because Elevate Credit is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth.

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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. Elevate Credit has a cash-to-debt ratio of 0.40, which ranks in the middle range of the companies in Credit Services industry. Based on this, GuruFocus ranks Elevate Credit's financial strength as 4 out of 10, suggesting poor balance sheet. This is the debt and cash of Elevate Credit 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. Elevate Credit has been profitable 3 over the past 10 years. Over the past twelve months, the company had a revenue of $392.6 million and earnings of $0.96 a share. Its operating margin is 29.81%, which ranks in the middle range of the companies in Credit Services industry. Overall, the profitability of Elevate Credit is ranked 5 out of 10, which indicates fair profitability. This is the revenue and net income of Elevate Credit 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 Elevate Credit is -17.5%, which ranks worse than 81% of the companies in Credit Services industry. The 3-year average EBITDA growth is 2.4%, which ranks in the middle range of the companies in Credit Services 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, Elevate Credit's return on invested capital is 20.01, and its cost of capital is 9.53. The historical ROIC vs WACC comparison of Elevate Credit is shown below:


In summary, The stock of Elevate Credit (NYSE:ELVT, 30-year Financials) is estimated to be modestly overvalued. The company's financial condition is poor and its profitability is fair. Its growth ranks in the middle range of the companies in Credit Services industry. To learn more about Elevate Credit stock, you can check out its 30-year Financials here.

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