Get Premium to unlock powerful stock data

RingCentral Stock Is Estimated To Be Fairly Valued

Author's Avatar
May 21, 2021
Article's Main Image

The stock of RingCentral (NYSE:RNG, 30-year Financials) is estimated to be 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 $252.64 per share and the market cap of $23 billion, RingCentral stock is believed to be fairly valued. GF Value for RingCentral is shown in the chart below.

1395794543621722112.png?1621618326

Because RingCentral is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which averaged 26.4% over the past three years and is estimated to grow 23.55% annually over the next three to five years.

Link: These companies may deliever higher future returns at reduced risk.

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. RingCentral has a cash-to-debt ratio of 0.32, which ranks worse than 87% of the companies in Software industry. Based on this, GuruFocus ranks RingCentral's financial strength as 4 out of 10, suggesting poor balance sheet. This is the debt and cash of RingCentral over the past years:

1395794545639182336.png

Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. RingCentral has been profitable 0 over the past 10 years. Over the past twelve months, the company had a revenue of $1.3 billion and loss of $0.252 a share. Its operating margin is -10.23%, which ranks worse than 71% of the companies in Software industry. Overall, the profitability of RingCentral is ranked 3 out of 10, which indicates poor profitability. This is the revenue and net income of RingCentral over the past years:

1395794547014914048.png

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 performance of a company's stock. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of RingCentral is 26.4%, which ranks better than 86% of the companies in Software industry. The 3-year average EBITDA growth rate is 43.9%, which ranks better than 85% of the companies in Software industry.

One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average 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 return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, RingCentral's ROIC is -10.33 while its WACC came in at 5.57. The historical ROIC vs WACC comparison of RingCentral is shown below:

1395794548394840064.png

In closing, the stock of RingCentral (NYSE:RNG, 30-year Financials) is believed to be fairly valued. The company's financial condition is poor and its profitability is poor. Its growth ranks better than 85% of the companies in Software industry. To learn more about RingCentral 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.

Rating:
0 / 5 (0 votes)
Author's Avatar
WRITTEN BY

GuruFocus Screeners

Related Articles

Q&A with Gurus