The stock of Siebert Financial (NAS:SIEB, 30-year Financials) shows every sign of being 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 $4.03 per share and the market cap of $126.1 million, Siebert Financial stock gives every indication of being possible value trap. GF Value for Siebert Financial is shown in the chart below.
The reason we think that Siebert Financial stock might be a value trap is because Siebert Financial has an Altman Z-score of 0.14, which indicates that the financial condition of the company is in the distressed zone and implies a higher risk of bankruptcy. An Altman Z-score of above 2.99 would be better, indicating safe financial conditions. To learn more about how the Z-score measures the financial risk of the 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. Siebert Financial has a cash-to-debt ratio of 73.16, which which ranks better than 74% of the companies in Capital Markets industry. The overall financial strength of Siebert Financial is 5 out of 10, which indicates that the financial strength of Siebert Financial is fair. This is the debt and cash of Siebert Financial 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. Siebert Financial has been profitable 4 over the past 10 years. Over the past twelve months, the company had a revenue of $54.9 million and earnings of $0.1 a share. Its operating margin is 7.81%, which ranks in the middle range of the companies in Capital Markets industry. Overall, the profitability of Siebert Financial is ranked 4 out of 10, which indicates poor profitability. This is the revenue and net income of Siebert Financial 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 performance of a company's stock. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Siebert Financial is 45.5%, which ranks better than 91% of the companies in Capital Markets industry. The 3-year average EBITDA growth rate is 15.6%, which ranks in the middle range of the companies in Capital Markets 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, Siebert Financial's ROIC is 1.16 while its WACC came in at -1.25. The historical ROIC vs WACC comparison of Siebert Financial is shown below:
To conclude, the stock of Siebert Financial (NAS:SIEB, 30-year Financials) appears to be possible value trap. The company's financial condition is fair and its profitability is poor. Its growth ranks in the middle range of the companies in Capital Markets industry. To learn more about Siebert Financial stock, you can check out its 30-year Financials here.
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