Harmonic Inc (HLIT, Financial) recently posted a daily gain of 10.89%, a stark contrast to its 3-month loss of -27.58%. Despite this volatility, the company's Earnings Per Share (EPS) (EPS) stands at 0.18. This raises the question: is Harmonic (HLIT) modestly undervalued? This article will provide an in-depth valuation analysis of Harmonic, shedding light on its true market value.
About Harmonic Inc
Harmonic designs and manufactures video infrastructure products and system solutions to deliver video and broadband services to consumer devices. The company operates in two segments: Video and Broadband. Most of its revenue is generated from the United States. As of October 31, 2023, Harmonic's stock price is $10.79, while its GF Value, an estimation of fair value, stands at $12.17. This valuation discrepancy suggests that Harmonic might be undervalued, offering a potential investment opportunity.
Understanding the GF Value
GF Value is a proprietary measure of a stock's intrinsic value, computed based on historical trading multiples, a GuruFocus adjustment factor based on past returns and growth, and future business performance estimates. The GF Value Line on our summary page provides an overview of the fair value at which the stock should be traded.
The stock of Harmonic (HLIT, Financial) is estimated to be modestly undervalued, according to the GF Value. This suggests that the long-term return of its stock is likely to be higher than its business growth.
Financial Strength
Financial strength is a critical factor for investors as investing in companies with low financial strength could result in permanent capital loss. Harmonic's cash-to-debt ratio of 0.45 ranks worse than 74.97% of 2369 companies in the Hardware industry. Despite this, GuruFocus ranks Harmonic's financial strength as 6 out of 10, suggesting a fair balance sheet.
Profitability and Growth
Investing in profitable companies, especially those with high profit margins, poses less risk. Harmonic has been profitable 3 times over the past 10 years. With an operating margin of 8%, it ranks better than 69.25% of 2449 companies in the Hardware industry. However, GuruFocus ranks Harmonic's profitability at 4 out of 10, indicating poor profitability.
Growth is a critical factor in a company's valuation. Harmonic's 3-year average annual revenue growth rate is 7.3%, which ranks better than 58.66% of 2327 companies in the Hardware industry. Its 3-year average EBITDA growth rate is 26%, ranking better than 73.11% of 1956 companies in the Hardware industry.
Comparing ROIC and WACC
Comparing a company's Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC) can also provide insights into its profitability. Over the past 12 months, Harmonic's ROIC was 4.19, while its WACC came in at 8.84.
Conclusion
In conclusion, Harmonic (HLIT, Financial) appears to be modestly undervalued. Despite its fair financial condition and poor profitability, its growth ranks better than 73.11% of 1956 companies in the Hardware industry. For more information about Harmonic stock, check out its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
