FormFactor Inc (FORM, Financial) has recently shown a daily gain of 9.91% and a 3-month gain of 13.58%, yet it reports a Loss Per Share of $0.09. This presents investors with a critical question: is FormFactor modestly overvalued? To address this, we'll delve into a detailed valuation analysis of FormFactor, examining whether its current market price reflects its true worth. Read on for an insightful exploration of FormFactor's financial health, growth prospects, and intrinsic value.
Company Overview
FormFactor Inc designs, develops, manufactures, sells, and supports semiconductor probe card products, operating predominantly within its Probe Cards Segment. With the company's stock price at $37.72 and a market cap of $2.90 billion, a comparison to the GF Value—an estimate of fair value—suggests that FormFactor might be trading at a premium. This introduction sets the stage for a deeper evaluation of FormFactor's valuation, merging financial analysis with key business insights.
Understanding GF Value
The GF Value is a unique measure indicating the intrinsic value of a stock, based on historical trading multiples, an adjustment factor for past performance, and projected future business outcomes. If FormFactor's stock price significantly exceeds the GF Value Line, it may be overvalued, implying a potentially lower future return. Conversely, a price below the GF Value Line suggests a stock with a higher potential return. At $37.72 per share, FormFactor's GF Value indicates the stock might be modestly overvalued.
Given this valuation, we might expect the long-term return on FormFactor stock to lag behind its business growth, indicating a cautious outlook for investors.
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Financial Strength Analysis
Investing in companies with robust financial strength is crucial to avoid permanent capital loss. FormFactor's cash-to-debt ratio of 5.12 places it favorably within the Semiconductors industry, earning a GuruFocus financial strength rating of 8 out of 10. This suggests a solid balance sheet that could weather financial storms.
Profitability and Growth Prospects
A company's profitability is a key indicator of its investment safety. FormFactor has been profitable for 6 out of the past 10 years. Despite a recent Loss Per Share of $0.09 and an operating margin of -2.21%, it maintains a fair profitability rank of 6 out of 10. When considering growth, FormFactor's average annual revenue growth of 7.8% is moderate, yet its 3-year average EBITDA growth rate is in the lower quartile compared to industry peers.
Evaluating ROIC vs. WACC
The comparison between Return on Invested Capital (ROIC) and Weighted Average Cost of Capital (WACC) offers insight into FormFactor's value creation. With a ROIC of -1.81 and a WACC of 11.42 over the past year, there's an indication that the company may not be generating adequate cash flow relative to the capital invested.
Conclusion
In summary, FormFactor (FORM, Financial) appears to be modestly overvalued. The company boasts a strong financial condition and fair profitability, but its growth and value creation metrics suggest caution. For a more detailed look at FormFactor's financials, investors can review 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.
