JOYY Inc (YY, Financial) has recently experienced a daily gain of 5.66%, with a 3-month gain of 3.49%. Despite these positive movements, the company reports a Loss Per Share of 1.15. This brings us to the pivotal question: is JOYY (YY) significantly overvalued? In the following analysis, we will delve into the valuation of JOYY, scrutinizing its market price in relation to its intrinsic value as determined by the GF Value.
Company Introduction
JOYY Inc is a global technology powerhouse renowned for its real-time interactive user platforms and expansive Software-as-a-Service commerce solutions. With a focus on technological innovation, JOYY has cemented its industry standing with an impressive portfolio of patents. At the heart of our analysis is the comparison between JOYY's current stock price of $39.03 and the GF Value, which estimates the stock's fair value to be $27.51. This juxtaposition sets the stage for an in-depth valuation assessment.
Summarize GF Value
The GF Value is a unique metric that calculates the intrinsic value of a stock by considering historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line suggests a balanced trading value for the stock. Should the stock price significantly exceed the GF Value Line, it might be overvalued, indicating a potential decline in future returns. Conversely, a price well below the GF Value Line could signal undervaluation and the possibility of higher future returns. With a market cap of $2.40 billion, JOYY (YY, Financial) appears significantly overvalued at its current price, raising concerns about the long-term return of its stock compared to its future business growth.
Link: These companies may deliver higher future returns at reduced risk.
Financial Strength
Investing in companies with robust financial strength is vital to mitigate the risk of capital loss. A company's financial health can be gauged by examining metrics such as the cash-to-debt ratio and interest coverage. JOYY boasts a cash-to-debt ratio of 6.76, outperforming 53.55% of its industry peers. This positions JOYY's financial strength at a fair level, with a GuruFocus rating of 7 out of 10.
Profitability and Growth
Consistent profitability is a hallmark of a less risky investment, and JOYY has maintained profitability for 9 out of the past 10 years. With an annual revenue of $2.30 billion and a Loss Per Share of $1.15, JOYY's operating margin stands at 1.34%. This is more favorable than over half of the companies in the Interactive Media industry. Additionally, JOYY's profitability is ranked 8 out of 10, reflecting its strong position.
The growth of a company is paramount in valuation. JOYY's 3-year average annual revenue growth rate is an impressive 36%, surpassing 82.63% of the industry. Moreover, its EBITDA growth rate of 99.2% ranks higher than 96.92% of its peers, underscoring its exceptional growth trajectory.
ROIC vs WACC
Comparing a company's Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC) provides insight into its value creation. JOYY's ROIC of 0.52 and WACC of 4.36 suggest that it may not be generating sufficient cash flow relative to the capital invested. The historical comparison between ROIC and WACC for JOYY is depicted below:
Conclusion
Considering all factors, JOYY (YY, Financial) presents as significantly overvalued. The company's financial standing is fair, its profitability is commendable, and its growth outshines a large portion of the Interactive Media industry. For a more comprehensive understanding of JOYY's financial health, explore its 30-Year Financials here.
To discover high-quality companies that may offer above-average returns, visit the GuruFocus High Quality Low Capex Screener.
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.
