Perion Network Ltd (PERI, Financial) recently reported a daily loss of -5%, extending its 3-month loss to -18.43%. Despite an Earnings Per Share (EPS) of 2.23, questions arise about whether the stock is significantly overvalued. This article aims to explore this question, delving into an in-depth valuation analysis of PERI. So, let's dive in.
Company Overview
Perion Network Ltd is a technology company that offers online advertising and search solutions to brands, agencies, and publishers across desktop, mobile, and social channels. Its product and service portfolio includes Undertone, Codefuel, Make me reach, and Smilebox. The company primarily generates its revenue from search fees and online advertising services, with a significant portion of its business presence in North America.
At present, Perion Network trades at $28.52 per share, with a market cap of $1.30 billion. However, its GF Value, an estimate of fair value, stands at $21.68, indicating that the stock might be significantly overvalued.
Understanding GF Value
The GF Value is a proprietary measure of a stock's intrinsic value, computed based on historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line on our summary page provides an overview of the fair value at which the stock should ideally be traded.
According to GuruFocus Value calculation, Perion Network (PERI, Financial) appears to be significantly overvalued. This conclusion comes from comparing the stock's current price with the GF Value Line. 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. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
Considering that 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
Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid this, it's essential to review a company's financial strength before deciding to purchase shares. Key indicators of financial strength include the cash-to-debt ratio and interest coverage. Perion Network has a cash-to-debt ratio of 51.42, ranking better than 69.42% of 569 companies in the Interactive Media industry. This indicates that the financial strength of Perion Network is strong.
Profitability and Growth
Investing in profitable companies carries less risk, especially those that have demonstrated consistent profitability over the long term. Perion Network has been profitable 8 years over the past 10 years, with an operating margin of 18.76% better than 78.04% of 583 companies in the Interactive Media industry. This indicates fair profitability .
One of the most important factors in the valuation of a company is its growth . Companies that grow faster create more value for shareholders, especially if that growth is profitable. Perion Network has an average annual revenue growth of 10.3%, ranking better than 54.46% of 516 companies in the Interactive Media industry. Its 3-year average EBITDA growth is 38%, ranking better than 79.95% of 384 companies in the Interactive Media industry.
ROIC vs 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. For the past 12 months, Perion Network's return on invested capital is 35.11, and its cost of capital is 9.84.
Conclusion
In conclusion, Perion Network (PERI, Financial) appears to be significantly overvalued. The company's financial condition is strong, and its profitability is fair. Its growth ranks better than 79.95% of 384 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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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
