The stock of MIND Technology (NAS:MIND, 30-year Financials) appears to be modestly undervalued, 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 $2.25 per share and the market cap of $29 million, MIND Technology stock is estimated to be modestly undervalued. GF Value for MIND Technology is shown in the chart below.
Because MIND Technology is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth, which averaged 1.1% over the past five years.
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Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Thus, it is important to carefully review the financial strength of a company before deciding whether to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company. MIND Technology has a cash-to-debt ratio of 0.90, which is in the middle range of the companies in Hardware industry. GuruFocus ranks the overall financial strength of MIND Technology at 5 out of 10, which indicates that the financial strength of MIND Technology is fair. This is the debt and cash of MIND Technology over the past years:
It is less risky to invest in profitable companies, especially those with consistent profitability over long term. A company with high profit margins is usually a safer investment than those with low profit margins. MIND Technology has been profitable 4 over the past 10 years. Over the past twelve months, the company had a revenue of $40.6 million and loss of $1.87 a share. Its operating margin is -31.34%, which ranks in the bottom 10% of the companies in Hardware industry. Overall, the profitability of MIND Technology is ranked 3 out of 10, which indicates poor profitability. This is the revenue and net income of MIND Technology 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. MIND Technology's 3-year average revenue growth rate is in the middle range of the companies in Hardware industry. MIND Technology's 3-year average EBITDA growth rate is 15.3%, which ranks better than 66% of the companies in Hardware 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, MIND Technology's return on invested capital is -32.21, and its cost of capital is 13.66. The historical ROIC vs WACC comparison of MIND Technology is shown below:
Overall, the stock of MIND Technology (NAS:MIND, 30-year Financials) gives every indication of being modestly undervalued. The company's financial condition is fair and its profitability is poor. Its growth ranks better than 66% of the companies in Hardware industry. To learn more about MIND Technology stock, you can check out its 30-year Financials here.
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