Zuora Inc (ZUO, Financial) recently displayed a daily gain of 1.88% and has seen a significant 3-month gain of 26.74%. Despite these positive trends, the company reports a Loss Per Share of $0.48. This raises a crucial question for value investors: Is Zuora fairly valued at its current market price? This article delves into Zuora's valuation to provide a clearer picture.
Company Overview
Zuora Inc provides innovative cloud-based software on a subscription basis, aiding companies across various industries to manage and transform into subscription businesses. The company's flagship offering, the Zuora Central platform, automates the subscription order-to-cash process, encompassing quoting, billing, collections, analytics, and revenue recognition. With a majority of its revenue derived from the United States, Zuora's additional products like Zuora Billing, Zuora Revenue, and Zuora Payments further support its core functionalities. The current stock price stands at $10.05, closely aligning with the GF Value of $10.55, suggesting that the stock is fairly valued.
Understanding GF Value
The GF Value is a proprietary measure indicating the intrinsic value of a stock, calculated based on historical trading multiples, a GuruFocus adjustment factor from past performance, and future business performance estimates. For Zuora, the GF Value suggests the stock is fairly valued, with its market cap at $1.50 billion. This valuation implies that the long-term return of Zuora's stock should closely mirror the company's business growth rate.
Financial Strength and Risks
Investing in companies with robust financial strength mitigates the risk of permanent capital loss. Zuora's cash-to-debt ratio stands at 1.28, which is below average compared to its peers in the software industry. This positions Zuora's financial strength at a lower rank of 4 out of 10, indicating potential vulnerabilities.
Profitability and Growth Prospects
While Zuora has faced challenges in maintaining profitability, with an operating margin of -14.92%, its growth metrics tell a more optimistic story. The company's 3-year average annual revenue growth rate is 5.9%, and its EBITDA growth rate over the same period is an impressive 26.5%. These figures suggest that Zuora is capable of scaling its operations effectively despite current profitability concerns.
ROIC vs. WACC
A critical measure of profitability is the comparison between Return on Invested Capital (ROIC) and Weighted Average Cost of Capital (WACC). Zuora's ROIC of -16.01% falls short of its WACC of 11.72%, indicating that the company is not generating adequate returns on its investments.
Conclusion
In conclusion, Zuora (ZUO, Financial) appears to be fairly valued according to the GF Value, with a market cap of $1.50 billion and a stock price of $10.05. However, potential investors should be cautious of its financial strength and current profitability issues. For a deeper insight into Zuora's financial health and stock performance, interested readers can explore 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.
