The stock of SMART Global Holdings Inc (SGH, Financial) experienced a daily gain of 4.19%, despite a 3-month loss of 10.15%. With a Loss Per Share of 0.55, the question arises: is the stock fairly valued? This analysis aims to provide a comprehensive valuation of SMART Global Holdings (SGH), taking into account its financial performance and market trends. Read on to gain a deeper understanding of the company's value.
Introducing SMART Global Holdings
SMART Global Holdings Inc is a renowned designer and manufacturer of electronic products, with a focus on memory and computing technology. It caters to a diverse clientele, including enterprise, government, and original equipment manufacturer (OEM) markets. The company's primary product areas include Specialty Memory Products, Brazil Products, and Specialty Compute and Storage Solutions. Its presence spans across the U.S., Europe, Asia, and Latin America.
SMART Global Holdings (SGH, Financial) currently trades at a price of $23.63 per share, with a market cap of $1.20 billion. The company's GF Value, an estimate of its fair value, stands at $24.4, indicating that the stock is fairly valued. This conclusion is based on a comprehensive analysis of the company's financial performance and market position.
Understanding the GF Value
The GF Value is a unique measure of a stock's intrinsic value, calculated based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line provides a visual representation of the stock's ideal fair trading value.
The GF Value of SMART Global Holdings (SGH, Financial) suggests that the stock is fairly valued. This conclusion is derived from the stock's historical trading multiples, past business growth, and analyst estimates of future business performance. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
Given that SMART Global Holdings is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth.
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Assessing Financial Strength
Investing in companies with low financial strength can lead to permanent capital loss. Therefore, it is crucial to carefully review a company's financial strength before deciding to buy shares. A good initial perspective on the company's financial strength can be obtained by looking at the cash-to-debt ratio and interest coverage. SMART Global Holdings has a cash-to-debt ratio of 0.45, ranking worse than 80.09% of 904 companies in the Semiconductors industry. Based on this, GuruFocus ranks SMART Global Holdings's financial strength as 5 out of 10, suggesting a fair balance sheet.
Profitability and Growth
Companies that have been consistently profitable over the long term offer less risk for investors. Higher profit margins usually indicate a better investment compared to a company with lower profit margins. SMART Global Holdings has been profitable 4 times over the past 10 years. Over the past twelve months, the company had a revenue of $1.70 billion and a Loss Per Share of $0.55. Its operating margin is 4.18%, ranking worse than 58.72% of 952 companies in the Semiconductors industry. Overall, the profitability of SMART Global Holdings is ranked 6 out of 10, indicating fair profitability.
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of SMART Global Holdings is 9%, ranking worse than 57.91% of 872 companies in the Semiconductors industry. The 3-year average EBITDA growth is 9%, ranking worse than 67.87% of 775 companies in the Semiconductors industry.
ROIC vs WACC
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. 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, SMART Global Holdings's ROIC was 12.3, while its WACC came in at 11.31.
Conclusion
Overall, the stock of SMART Global Holdings (SGH, Financial) appears to be fairly valued. The company's financial condition is fair, and its profitability is also fair. Its growth ranks worse than 67.87% of 775 companies in the Semiconductors industry. For more detailed financial information about SMART Global Holdings stock, you can check out its 30-Year Financials here.
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