The stock of Image Sensing Systems (NAS:ISNS, 30-year Financials) is estimated to be significantly 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 $5.94 per share and the market cap of $31.8 million, Image Sensing Systems stock is estimated to be significantly overvalued. GF Value for Image Sensing Systems is shown in the chart below.
Because Image Sensing Systems is significantly overvalued, the long-term return of its stock is likely to be much lower than its future 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. Image Sensing Systems has a cash-to-debt ratio of 8.14, which ranks better than 75% of the companies in Hardware industry. Based on this, GuruFocus ranks Image Sensing Systems's financial strength as 9 out of 10, suggesting strong balance sheet. This is the debt and cash of Image Sensing Systems over the past years:
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Image Sensing Systems has been profitable 5 years over the past 10 years. During the past 12 months, the company had revenues of $13.2 million and earnings of $0.2 a share. Its operating margin of 4.62% in the middle range of the companies in Hardware industry. Overall, GuruFocus ranks Image Sensing Systems's profitability as fair. This is the revenue and net income of Image Sensing Systems 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 Image Sensing Systems is -4.3%, which ranks worse than 67% of the companies in Hardware industry. The 3-year average EBITDA growth rate is -17.5%, which ranks worse than 83% of the companies in Hardware 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, Image Sensing Systems's ROIC is 8.28 while its WACC came in at 9.15. The historical ROIC vs WACC comparison of Image Sensing Systems is shown below:
To conclude, Image Sensing Systems (NAS:ISNS, 30-year Financials) stock is believed to be significantly overvalued. The company's financial condition is strong and its profitability is fair. Its growth ranks worse than 83% of the companies in Hardware industry. To learn more about Image Sensing Systems stock, you can check out its 30-year Financials here.
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