Recent fluctuations in FormFactor Inc (FORM, Financial)'s stock price, including a significant daily gain of 17.66% and a three-month gain of 31.05%, have sparked interest among investors. With an Earnings Per Share (EPS) of 1.32, a critical question arises: is FormFactor significantly overvalued? This analysis aims to delve into the intrinsic value of FormFactor, leveraging the GF Value to guide potential investment decisions.
Company Overview
FormFactor Inc designs, develops, manufactures, and supports semiconductor probe card products, operating primarily through its Probe Cards and Systems segments. As a leader in its field, FormFactor's probe cards are crucial for semiconductor manufacturers, contributing the majority of its revenue. The company also offers analytical probes, probe stations, and thermal sub-systems. Despite its current share price of $51.76, which gives it a market cap of $4 billion, the GF Value estimates the fair intrinsic value at only $33.47, suggesting that the stock might be significantly overvalued.
Understanding GF Value
The GF Value is a proprietary measure indicating the true value of a stock based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. If FormFactor's stock trades above this line, it might indicate an overvaluation, leading to potentially poorer future returns. Conversely, trading below the line suggests undervaluation and possibly higher future returns. Currently, FormFactor's stock price substantially exceeds its GF Value, pointing to overvaluation.
Financial Strength and Stability
Investing in companies with robust financial health reduces the risk of significant capital loss. FormFactor's cash-to-debt ratio stands at 6.82, outperforming 69.39% of its industry peers. This strong financial position is reflected in its GuruFocus financial strength rating of 9 out of 10.
Profitability and Growth Insights
FormFactor has maintained profitability over the past decade, with a revenue of $664.40 million and an operating margin of 1.3% in the last twelve months. However, its growth metrics suggest challenges, with a 3-year average annual revenue growth rate of -1.1%, ranking below 65.58% of its industry counterparts.
Evaluating ROIC and WACC
A critical profitability metric is the comparison between Return on Invested Capital (ROIC) and Weighted Average Cost of Capital (WACC). FormFactor's ROIC over the past year was 1.13, significantly lower than its WACC of 9.65, indicating inefficiency in generating adequate returns on invested capital.
Conclusion
While FormFactor (FORM, Financial) exhibits strong financial health and consistent profitability, its current market valuation greatly exceeds its GF Value, suggesting it is significantly overvalued. Potential investors should consider this analysis carefully when making investment decisions. For more detailed financial insights, visit FormFactor's 30-Year Financials here.
To discover high-quality companies that may deliver above-average returns at reduced risk, explore 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.
