The stock of CD Projekt SA (WAR:CDR, 30-year Financials) shows every sign of being significantly 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 zł194.58 per share and the market cap of zł21.8 billion, CD Projekt SA stock gives every indication of being significantly undervalued. GF Value for CD Projekt SA is shown in the chart below.
Because CD Projekt SA is significantly undervalued, the long-term return of its stock is likely to be much higher than its business growth.
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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. CD Projekt SA has a cash-to-debt ratio of 10000.00, which ranks better than 100% of the companies in Interactive Media industry. Based on this, GuruFocus ranks CD Projekt SA's financial strength as 10 out of 10, suggesting strong balance sheet. This is the debt and cash of CD Projekt SA 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. CD Projekt SA has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of zł682.5 million and earnings of zł2.76 a share. Its operating margin is 41.83%, which ranks better than 94% of the companies in Interactive Media industry. Overall, the profitability of CD Projekt SA is ranked 8 out of 10, which indicates strong profitability. This is the revenue and net income of CD Projekt SA 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 CD Projekt SA is -4.9%, which ranks worse than 71% of the companies in Interactive Media industry. The 3-year average EBITDA growth rate is -14.3%, which ranks worse than 80% of the companies in Interactive Media industry.
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted 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 ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, CD Projekt SA's ROIC was 27.58, while its WACC came in at 6.28. The historical ROIC vs WACC comparison of CD Projekt SA is shown below:
To conclude, CD Projekt SA (WAR:CDR, 30-year Financials) stock shows every sign of being significantly undervalued. The company's financial condition is strong and its profitability is strong. Its growth ranks worse than 80% of the companies in Interactive Media industry. To learn more about CD Projekt SA stock, you can check out its 30-year Financials here.
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