Yahoo Finance Advantest Stock Is Believed To Be Significantly Overvalued
- By GF Value
The stock of Advantest (OTCPK:ATEYY, 30-year Financials) is believed to be significantly overvalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $84.91 per share and the market cap of $16.7 billion, Advantest stock gives every indication of being significantly overvalued. GF Value for Advantest is shown in the chart below.
Because Advantest is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 19.9% over the past three years and is estimated to grow 2.41% annually over the next three to five years.
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Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. Advantest has a cash-to-debt ratio of 11.26, which which ranks better than 75% of the companies in Semiconductors industry. The overall financial strength of Advantest is 8 out of 10, which indicates that the financial strength of Advantest is strong. This is the debt and cash of Advantest over the past years:
It poses less risk to invest in profitable companies, especially those that have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. Advantest has been profitable 7 over the past 10 years. Over the past twelve months, the company had a revenue of $2.7 billion and earnings of $2.434 a share. Its operating margin is 19.89%, which ranks better than 83% of the companies in Semiconductors industry. Overall, GuruFocus ranks the profitability of Advantest at 7 out of 10, which indicates fair profitability. This is the revenue and net income of Advantest over the past years:
Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term stock performance of a company. A faster growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Advantest is 19.9%, which ranks better than 86% of the companies in Semiconductors industry. The 3-year average EBITDA growth rate is 49.9%, which ranks better than 88% of the companies in Semiconductors industry.
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Advantest's return on invested capital is 30.80, and its cost of capital is 7.83. The historical ROIC vs WACC comparison of Advantest is shown below:
In summary, the stock of Advantest (OTCPK:ATEYY, 30-year Financials) gives every indication of being significantly overvalued. The company's financial condition is strong and its profitability is fair. Its growth ranks better than 88% of the companies in Semiconductors industry. To learn more about Advantest stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.
