Elastic NV (ESTC, Financial) recently reported a daily gain of 2.98%, with a 21.81% increase over the last three months. However, despite its earnings-per-share loss of 2.24, we pose a critical question: Is the stock significantly undervalued? This article aims to provide a comprehensive analysis of Elastic NV's valuation, offering valuable insights for potential investors. Read on to delve into the financial intricacies of Elastic NV.
A Snapshot of Elastic NV
Elastic NV, a software company based in Mountain View, California, specializes in search-adjacent products. The firm's search engine processes both structured and unstructured data, providing valuable insights. Elastic NV primarily focuses on enterprise search, observability, and security. With a current stock price of $78.67, Elastic NV has a market cap of $7.70 billion, suggesting significant undervaluation compared to the GF Value of $118.92.
Understanding the GF Value of Elastic NV
The GF Value is a proprietary measure that determines a stock's intrinsic value. It considers historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. If a stock's price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. However, if it's significantly below the GF Value Line, its future return will likely be higher.
Considering these factors, Elastic NV's stock shows every sign of being significantly undervalued. This suggests that the long-term return of its stock is likely to be much higher than its business growth.
Evaluating Elastic NV's Financial Strength
Companies with poor financial strength pose a high risk of permanent capital loss. To avoid this, investors must review a company's financial strength before purchasing shares. Elastic NV has a cash-to-debt ratio of 1.62, ranking worse than 57.89% of 2750 companies in the Software industry. The overall financial strength of Elastic NV is 5 out of 10, indicating fair financial strength.
Profitability and Growth of Elastic NV
Investing in profitable companies, especially those with consistent profitability over the long term, is less risky. Elastic NV has been profitable 0 over the past 10 years. Over the past twelve months, the company had a revenue of $1.10 billion and a Loss Per Share of $2.24. Its operating margin is -14.63%, ranking worse than 70.75% of 2786 companies in the Software industry. Overall, the profitability of Elastic NV is ranked 3 out of 10, indicating poor profitability.
One of the most important factors in the valuation of a company is growth. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Elastic NV is 27.2%, ranking better than 82.84% of 2412 companies in the Software industry. The 3-year average EBITDA growth is 3.3%, ranking worse than 60.52% of 2006 companies in the Software industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted cost of capital (WACC) is another way to evaluate its profitability. The ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. The 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, Elastic NV's ROIC was -19.57, while its WACC came in at 8.51.
Conclusion
In conclusion, Elastic NV (ESTC, Financial)'s stock shows every sign of being significantly undervalued. The company's financial condition is fair, and its profitability is poor. Its growth ranks worse than 60.52% of 2006 companies in the Software industry. To learn more about Elastic NV's stock, check out its 30-Year Financials here.
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