Yahoo Finance F5 Networks Stock Appears To Be Fairly Valued
- By GF Value
The stock of F5 Networks (NAS:FFIV, 30-year Financials) shows every sign of being fairly valued, 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 $181.23 per share and the market cap of $10.9 billion, F5 Networks stock shows every sign of being fairly valued. GF Value for F5 Networks is shown in the chart below.
Because F5 Networks is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which averaged 5.9% over the past three years and is estimated to grow 7.03% annually over the next three to five years.
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Since investing in companies with low financial strength could result in permanent capital loss, investors must carefully review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. F5 Networks has a cash-to-debt ratio of 0.92, which ranks worse than 70% of the companies in Software industry. Based on this, GuruFocus ranks F5 Networks's financial strength as 5 out of 10, suggesting fair balance sheet. This is the debt and cash of F5 Networks over the past years:
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. F5 Networks has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $2.5 billion and earnings of $4.51 a share. Its operating margin is 14.48%, which ranks better than 80% of the companies in Software industry. Overall, the profitability of F5 Networks is ranked 8 out of 10, which indicates strong profitability. This is the revenue and net income of F5 Networks over the past years:
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of F5 Networks is 5.9%, which ranks in the middle range of the companies in Software industry. The 3-year average EBITDA growth is -6.4%, which ranks worse than 76% of the companies in Software 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, F5 Networks's return on invested capital is 7.13, and its cost of capital is 8.32. The historical ROIC vs WACC comparison of F5 Networks is shown below:
In short, The stock of F5 Networks (NAS:FFIV, 30-year Financials) gives every indication of being fairly valued. The company's financial condition is fair and its profitability is strong. Its growth ranks worse than 76% of the companies in Software industry. To learn more about F5 Networks stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.
