The stock of VAT Group AG (OTCPK:VACNY, 30-year Financials) gives every indication of being 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 $34.145 per share and the market cap of $10.2 billion, VAT Group AG stock is estimated to be significantly overvalued. GF Value for VAT Group AG is shown in the chart below.
Because VAT Group AG is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which is estimated to grow 11.58% annually over the next three to five years.
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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. VAT Group AG has a cash-to-debt ratio of 0.52, which is worse than 68% of the companies in Industrial Products industry. The overall financial strength of VAT Group AG is 6 out of 10, which indicates that the financial strength of VAT Group AG is fair. This is the debt and cash of VAT Group AG 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. VAT Group AG has been profitable 6 over the past 10 years. Over the past twelve months, the company had a revenue of $755.7 million and earnings of $0.487 a share. Its operating margin is 24.98%, which ranks better than 95% of the companies in Industrial Products industry. Overall, GuruFocus ranks the profitability of VAT Group AG at 7 out of 10, which indicates fair profitability. This is the revenue and net income of VAT Group AG 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 VAT Group AG is -0.1%, which ranks in the middle range of the companies in Industrial Products industry. The 3-year average EBITDA growth rate is 5.8%, which ranks in the middle range of the companies in Industrial Products 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, VAT Group AG’s ROIC is 17.80 while its WACC came in at 8.02. The historical ROIC vs WACC comparison of VAT Group AG is shown below:
In conclusion, The stock of VAT Group AG (OTCPK:VACNY, 30-year Financials) is believed to be significantly overvalued. The company's financial condition is fair and its profitability is fair. Its growth ranks in the middle range of the companies in Industrial Products industry. To learn more about VAT Group AG stock, you can check out its 30-year Financials here.
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