The stock of LiveXLive Media (NAS:LIVX, 30-year Financials) gives every indication of being 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 $3.59 per share and the market cap of $278.4 million, LiveXLive Media stock is believed to be possible value trap. GF Value for LiveXLive Media is shown in the chart below.
The reason we think that LiveXLive Media stock might be a value trap is because LiveXLive Media has an Altman Z-score of -0.73, 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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Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Thus, it is important to carefully review the financial strength of a company before deciding whether to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company. LiveXLive Media has a cash-to-debt ratio of 0.75, which is in the middle range of the companies in the industry of Media - Diversified. GuruFocus ranks the overall financial strength of LiveXLive Media at 3 out of 10, which indicates that the financial strength of LiveXLive Media is poor. This is the debt and cash of LiveXLive Media 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. LiveXLive Media has been profitable 0 over the past 10 years. Over the past twelve months, the company had a revenue of $65.2 million and loss of $0.6 a share. Its operating margin is -45.02%, which ranks worse than 85% of the companies in the industry of Media - Diversified. Overall, the profitability of LiveXLive Media is ranked 1 out of 10, which indicates poor profitability. This is the revenue and net income of LiveXLive Media 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. LiveXLive Media’s 3-year average revenue growth rate is better than 100% of the companies in the industry of Media - Diversified. LiveXLive Media’s 3-year average EBITDA growth rate is -4.9%, which ranks in the middle range of the companies in the industry of Media - Diversified.
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, LiveXLive Media’s ROIC is -56.01 while its WACC came in at 10.69. The historical ROIC vs WACC comparison of LiveXLive Media is shown below:
In closing, the stock of LiveXLive Media (NAS:LIVX, 30-year Financials) is believed to be 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 the industry of Media - Diversified. To learn more about LiveXLive Media stock, you can check out its 30-year Financials here.
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