The stock of ORBCOMM (NAS:ORBC, 30-year Financials) gives every indication of being modestly 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 $7.795 per share and the market cap of $616.8 million, ORBCOMM stock appears to be modestly overvalued. GF Value for ORBCOMM is shown in the chart below.
Because ORBCOMM is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth, which is estimated to grow 1.88% annually over the next three to 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. ORBCOMM has a cash-to-debt ratio of 0.18, which is worse than 67% of the companies in Telecommunication Services industry. GuruFocus ranks the overall financial strength of ORBCOMM at 4 out of 10, which indicates that the financial strength of ORBCOMM is poor. This is the debt and cash of ORBCOMM 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. ORBCOMM has been profitable 2 over the past 10 years. Over the past twelve months, the company had a revenue of $248.5 million and loss of $0.44 a share. Its operating margin is 0.04%, which ranks worse than 75% of the companies in Telecommunication Services industry. Overall, GuruFocus ranks the profitability of ORBCOMM at 4 out of 10, which indicates poor profitability. This is the revenue and net income of ORBCOMM 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 ORBCOMM is -3%, which ranks worse than 68% of the companies in Telecommunication Services industry. The 3-year average EBITDA growth is 173.9%, which ranks better than 99% of the companies in Telecommunication Services industry.
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). 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. If the return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, ORBCOMM's ROIC is 0.02 while its WACC came in at 10.15. The historical ROIC vs WACC comparison of ORBCOMM is shown below:
To conclude, the stock of ORBCOMM (NAS:ORBC, 30-year Financials) appears to be modestly overvalued. The company's financial condition is poor and its profitability is poor. Its growth ranks better than 99% of the companies in Telecommunication Services industry. To learn more about ORBCOMM stock, you can check out its 30-year Financials here.
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