Perion Network Ltd (PERI, Financial) has seen a daily gain of 4.02% and a 3-month gain of 11.14%. The company's Earnings Per Share (EPS) (EPS) stands at 2.23. However, the question that arises is whether the stock is significantly overvalued. This article aims to provide an in-depth analysis of Perion Network's valuation, financial strength, profitability, and growth to help answer this question.
Company Introduction
Perion Network Ltd is a technology company that offers online advertising and searching solutions to brands, agencies, and publishers through desktop, mobile, and social channels. Its products and services include Undertone, Codefuel, Make me reach, and Smilebox. The company generates most of its revenue from search fees and online advertising services, primarily in North America. Currently, the company's share price is $35.15, which gives it a market cap of $1.60 billion.
GF Value
The GF Value represents the current intrinsic value of a stock derived from our exclusive method. The GF Value Line on our summary page gives an overview of the fair value that the stock should be traded at. It is calculated based on three factors:
- Historical multiples (PE Ratio, PS Ratio, PB Ratio and Price-to-Free-Cash-Flow) that the stock has traded at.
- GuruFocus adjustment factor based on the company's past returns and growth.
- Future estimates of the business performance.
Perion Network's stock appears to be significantly overvalued based on GuruFocus' valuation method. GF Value estimates the stock's fair value based on three key factors: historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. If the stock's share price is significantly above the GF Value Line, the stock may be overvalued and have poor future returns. On the other hand, if the stock's share price is significantly below the GF Value Line, the stock may be undervalued and have high future returns.
Because Perion Network 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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Financial Strength
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. Perion Network has a cash-to-debt ratio of 51.42, which is better than 69.35% of 571 companies in the Interactive Media industry. GuruFocus ranks the overall financial strength of Perion Network at 8 out of 10, which indicates that the financial strength of Perion Network is strong.
Profitability and Growth
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. Perion Network has been profitable 8 over the past 10 years. Over the past twelve months, the company had a revenue of $691.90 million and Earnings Per Share (EPS) of $2.23. Its operating margin is 18.76%, which ranks better than 78.25% of 584 companies in the Interactive Media industry. Overall, the profitability of Perion Network is ranked 7 out of 10, which indicates fair profitability.
Growth is one of the most important factors in the valuation of a company. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Perion Network is10.3%, which ranks better than 55.45% of 514 companies in the Interactive Media industry. The 3-year average EBITDA growth is 38%, which ranks better than 77.72% of 386 companies in the Interactive Media industry.
ROIC vs WACC
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average cost of capital. 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. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Perion Network's return on invested capital is 35.11, and its cost of capital is 9.7.
Conclusion
In conclusion, the stock of Perion Network appears to be significantly overvalued. The company's financial condition is strong, and its profitability is fair. Its growth ranks better than 77.72% of 386 companies in the Interactive Media industry. To learn more about Perion Network stock, you can check out its 30-Year Financials here.
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