The stock of Altisource Asset Management (AMEX:AAMC, 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 $19.25 per share and the market cap of $39.4 million, Altisource Asset Management stock appears to be significantly overvalued. GF Value for Altisource Asset Management is shown in the chart below.
Because Altisource Asset Management is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth.
Link: These companies may deliever higher future returns at reduced risk.
It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. Altisource Asset Management has a cash-to-debt ratio of 122.99, which is in the middle range of the companies in Asset Management industry. The overall financial strength of Altisource Asset Management is 5 out of 10, which indicates that the financial strength of Altisource Asset Management is fair. This is the debt and cash of Altisource Asset Management 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. Altisource Asset Management has been profitable 2 over the past 10 years. Over the past twelve months, the company had a revenue of $4.3 million and earnings of $60.15 a share. Its operating margin is -445.19%, which ranks in the bottom 10% of the companies in Asset Management industry. Overall, GuruFocus ranks the profitability of Altisource Asset Management at 1 out of 10, which indicates poor profitability. This is the revenue and net income of Altisource Asset Management 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. Altisource Asset Management’s 3-year average revenue growth rate is in the bottom 10% of the companies in Asset Management industry. Altisource Asset Management’s 3-year average EBITDA growth rate is -40%, which ranks worse than 85% of the companies in Asset Management 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, Altisource Asset Management’s ROIC was -186.04, while its WACC came in at 8.30. The historical ROIC vs WACC comparison of Altisource Asset Management is shown below:
Overall, the stock of Altisource Asset Management (AMEX:AAMC, 30-year Financials) shows every sign of being significantly overvalued. The company's financial condition is fair and its profitability is poor. Its growth ranks worse than 85% of the companies in Asset Management industry. To learn more about Altisource Asset Management 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.
