The stock of CYREN (NAS:CYRN, 30-year Financials) is believed to be 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 $0.7099 per share and the market cap of $53.7 million, CYREN stock gives every indication of being possible value trap. GF Value for CYREN is shown in the chart below.
The reason we think that CYREN stock might be a value trap is because its Piotroski F-score is only 2, out of the total of 9. Such a low Piotroski F-score indicates the company is getting worse in multiple aspects in the areas of profitability, funding and efficiency. In this case, investors should look beyond the low valuation of the company and make sure it has no long-term risks. To learn more about how the Piotroski F-score measures the business trend of a company, please go here. Furthermore, CYREN has an Altman Z-score of -5.24, 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. CYREN has a cash-to-debt ratio of 0.56, which which ranks worse than 79% of the companies in Software industry. The overall financial strength of CYREN is 2 out of 10, which indicates that the financial strength of CYREN is poor. This is the debt and cash of CYREN over the past years:
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. CYREN has been profitable 2 over the past 10 years. Over the past twelve months, the company had a revenue of $35.5 million and loss of $0.3 a share. Its operating margin is -48.70%, which ranks worse than 83% of the companies in Software industry. Overall, the profitability of CYREN is ranked 2 out of 10, which indicates poor profitability. This is the revenue and net income of CYREN over the past years:
Growth is probably one of the most important factors 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. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. CYREN's 3-year average revenue growth rate is worse than 79% of the companies in Software industry. CYREN's 3-year average EBITDA growth rate is 3.4%, which ranks in the middle range 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, CYREN's ROIC is -28.34 while its WACC came in at 4.44. The historical ROIC vs WACC comparison of CYREN is shown below:
To conclude, the stock of CYREN (NAS:CYRN, 30-year Financials) gives every indication of being possible value trap. The company's financial condition is poor and its profitability is poor. Its growth ranks in the middle range of the companies in Software industry. To learn more about CYREN stock, you can check out its 30-year Financials here.
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