Yahoo Finance Prosus NV Stock Is Believed To Be Possible Value Trap
- By GF Value
The stock of Prosus NV (OTCPK:PROSY, 30-year Financials) is estimated to be possible value trap, 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 $20.63 per share and the market cap of $166.5 billion, Prosus NV stock is estimated to be possible value trap. GF Value for Prosus NV is shown in the chart below.
The reason we think that Prosus NV stock might be a value trap is because its Piotroski F-score is only 2, out of the total of 9. Such a low Piotroski F-score indicates the company is getting worse in multiple aspects in the areas of profitability, funding and efficiency. In this case, investors should look beyond the low valuation of the company and make sure it has no long-term risks. To learn more about how the Piotroski F-score measures the business trend of a company, please go here.
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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. Prosus NV has a cash-to-debt ratio of 1.68, which which ranks worse than 73% of the companies in Interactive Media industry. The overall financial strength of Prosus NV is 6 out of 10, which indicates that the financial strength of Prosus NV is fair. This is the debt and cash of Prosus NV 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. Prosus NV has been profitable 4 over the past 10 years. Over the past twelve months, the company had a revenue of $4.1 billion and earnings of $0.524 a share. Its operating margin is -13.51%, which ranks worse than 72% of the companies in Interactive Media industry. Overall, the profitability of Prosus NV is ranked 2 out of 10, which indicates poor profitability. This is the revenue and net income of Prosus NV over the past years:
Growth is probably one of the most important factors in the valuation of a company. GuruFocus' research has found that growth is closely correlated with the long-term performance of a company's stock. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. Prosus NV's 3-year average revenue growth rate is in the middle range of the companies in Interactive Media industry. Prosus NV's 3-year average EBITDA growth rate is 64.1%, which ranks better than 86% of the companies in Interactive Media industry.
Another way to look at the profitability of a company is to compare its return on invested capital and the weighted 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. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, Prosus NV's return on invested capital is -1.83, and its cost of capital is 5.68. The historical ROIC vs WACC comparison of Prosus NV is shown below:
To conclude, the stock of Prosus NV (OTCPK:PROSY, 30-year Financials) gives every indication of being possible value trap. The company's financial condition is fair and its profitability is poor. Its growth ranks better than 86% of the companies in Interactive Media industry. To learn more about Prosus NV stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.
