Amidst a daily loss of 4.59% and a staggering three-month decline of 50.64%, Sprout Social Inc (SPT, Financial) presents a curious case for valuation with a reported Loss Per Share of 1.25. This analysis seeks to uncover whether Sprout Social (SPT) is truly as significantly undervalued as the GF Value suggests, currently pegged at $89.71 per share.
Company Overview
Sprout Social Inc develops comprehensive cloud software that integrates social messaging, data, and workflows. This system supports a unified record, intelligence, and actionable strategies, primarily generating revenue through software subscriptions. With a current stock price of $30.35 and a market cap of $1.70 billion, a comparison with the GF Value indicates a potential undervaluation. Here's a closer look at the company's financials:
Understanding GF Value
The GF Value is a proprietary measure calculated based on historical trading multiples, an adjustment factor from past returns and growth, and estimated future business performance. This metric suggests that Sprout Social (SPT, Financial) should ideally trade around this value. A price well below the GF Value, as in the current scenario, implies a higher potential future return.
Financial Strength and Stability
Investing in companies with robust financial health reduces the risk of capital loss. Sprout Social's cash-to-debt ratio stands at 1.49, positioning it below 58.34% of its peers in the Software industry. This gives the company a financial strength rating of 6 out of 10 from GuruFocus, indicating a fair balance sheet.
Profitability and Growth Metrics
Profitability is crucial, and Sprout Social's operating margin of -19.88% is lower than 76.79% of its industry counterparts. Despite this, the company has achieved a notable 3-year average revenue growth rate of 32.3%. However, its EBITDA growth rate has been disappointing at -25%, highlighting challenges in profitability.
Capital Efficiency: ROIC vs. WACC
Assessing a company's efficiency in generating returns on invested capital (ROIC) relative to its cost of capital (WACC) is vital. Sprout Social's ROIC of -25.41% significantly underperforms its WACC of 10.25%, suggesting inefficiencies in capital utilization.
Conclusion
Despite being significantly undervalued according to the GF Value, Sprout Social's financial condition and profitability raise concerns. The company's growth metrics, although strong in revenue, are overshadowed by poor profitability and capital efficiency. For a detailed financial analysis, visit Sprout Social's 30-Year Financials.
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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.
