The stock of Wacom Co (GREY:WACMF, 30-year Financials) is estimated to be 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 $6.13 per share and the market cap of $1 billion, Wacom Co stock gives every indication of being modestly overvalued. GF Value for Wacom Co is shown in the chart below.
Because Wacom Co is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth, which averaged 9.7% over the past three years and is estimated to grow 5.38% annually over the next three to five years.
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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. Wacom Co has a cash-to-debt ratio of 5.34, which ranks better than 70% of the companies in Hardware industry. Based on this, GuruFocus ranks Wacom Co’s financial strength as 8 out of 10, suggesting strong balance sheet. This is the debt and cash of Wacom Co 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. Wacom Co has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of $1 billion and earnings of $0.596 a share. Its operating margin is 12.35%, which ranks better than 80% of the companies in Hardware industry. Overall, the profitability of Wacom Co is ranked 7 out of 10, which indicates fair profitability. This is the revenue and net income of Wacom Co 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 Wacom Co is 9.7%, which ranks better than 77% of the companies in Hardware industry. The 3-year average EBITDA growth rate is 35.1%, which ranks better than 86% 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, Wacom Co’s ROIC is 42.44 while its WACC came in at 9.39. The historical ROIC vs WACC comparison of Wacom Co is shown below:
In closing, Wacom Co (GREY:WACMF, 30-year Financials) stock appears to be modestly overvalued. The company's financial condition is strong and its profitability is fair. Its growth ranks better than 86% of the companies in Hardware industry. To learn more about Wacom Co stock, you can check out its 30-year Financials here.
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