The stock of Aspen Aerogels (NYSE:ASPN, 30-year Financials) appears 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 $34.82 per share and the market cap of $987.2 million, Aspen Aerogels stock gives every indication of being significantly overvalued. GF Value for Aspen Aerogels is shown in the chart below.
Because Aspen Aerogels is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth.
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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. Aspen Aerogels has a cash-to-debt ratio of 1.94, which is better than 68% of the companies in Construction industry. The overall financial strength of Aspen Aerogels is 6 out of 10, which indicates that the financial strength of Aspen Aerogels is fair. This is the debt and cash of Aspen Aerogels 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. Aspen Aerogels has been profitable 0 over the past 10 years. Over the past twelve months, the company had a revenue of $100 million and loss of $0.91 a share. Its operating margin is -24.67%, which ranks in the bottom 10% of the companies in Construction industry. Overall, the profitability of Aspen Aerogels is ranked 1 out of 10, which indicates poor profitability. This is the revenue and net income of Aspen Aerogels over the past years:
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 Aspen Aerogels is -7.3%, which ranks worse than 71% of the companies in Construction industry. The 3-year average EBITDA growth rate is -6.4%, which ranks worse than 68% of the companies in Construction 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, Aspen Aerogels’s ROIC is -32.46 while its WACC came in at 10.83. The historical ROIC vs WACC comparison of Aspen Aerogels is shown below:
In closing, the stock of Aspen Aerogels (NYSE:ASPN, 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 68% of the companies in Construction industry. To learn more about Aspen Aerogels stock, you can check out its 30-year Financials here.
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