FormFactor Inc (FORM, Financial) recently experienced a significant daily gain of 9.91%, complementing a 3-month gain of 13.58%. Despite these positive trends, the company has reported a Loss Per Share of $0.09. These figures raise a pivotal question for value investors: Is FormFactor (FORM) modestly overvalued? This article delves into a comprehensive valuation analysis to explore this query, inviting readers to consider the insights that follow.
Company Introduction
FormFactor Inc operates within the semiconductor industry, focusing on the design, development, and sale of probe card products. With a business model that spans two reportable segments, Probe Cards and Systems, the company has established a significant presence in its sector. The Probe Cards Segment handles sales of probe cards and analytical probes, while the Systems Segment deals with probe stations and thermal sub-systems. The former is notably the primary revenue driver for FormFactor. As we examine the company's valuation, we note that its current stock price of $37.72 contrasts with the GF Value of $32.9, suggesting a potential overvaluation. This initial comparison sets the stage for a deeper analysis of FormFactor's intrinsic value.
Summarize GF Value
The GF Value is a unique measure that encapsulates the intrinsic worth of a stock, factoring in historical trading multiples, a GuruFocus adjustment for past performance and growth, and future business projections. When a stock's price significantly exceeds the GF Value Line, it may indicate overvaluation and a potential for poor future returns. Conversely, a price well below this line could signal undervaluation and the prospect of higher returns. FormFactor (FORM, Financial) appears modestly overvalued with its stock price hovering above the GF Value Line, implying that its long-term return might not align with its business growth.
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Financial Strength
Investors must consider a company's financial strength to mitigate the risk of capital loss. Key indicators such as the cash-to-debt ratio and interest coverage provide insight into a company's financial robustness. FormFactor boasts a cash-to-debt ratio of 5.12, outperforming 65.04% of its industry peers. With an overall financial strength rating of 8 out of 10, FormFactor's fiscal health is deemed strong.
Profitability and Growth
Profitability is a critical factor for investment safety, with high profit margins often indicative of lower risk. FormFactor has maintained profitability for 6 out of the past 10 years. Despite a revenue of $660.90 million in the past twelve months, the company reported a Loss Per Share of $0.09, and its operating margin is currently at -2.21%. This performance is less favorable compared to 72.19% of competitors in the semiconductor industry. In terms of growth, FormFactor's 3-year average annual revenue growth rate is 7.8%, which is below industry standards.
ROIC vs. WACC
Assessing a company's profitability can also be achieved by comparing its Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC). Ideally, the ROIC should exceed the WACC to indicate efficient capital utilization. FormFactor's ROIC over the past 12 months is -1.81, which is significantly lower than its WACC of 11.42, suggesting challenges in generating cash flow relative to capital investment.
Conclusion
In conclusion, FormFactor (FORM, Financial) is currently seen as modestly overvalued. The company's financial condition is robust, and its profitability, while fair, is not without its challenges. Growth prospects are also not as strong as some competitors within the semiconductor industry. To gain a deeper understanding of FormFactor's financials, investors are encouraged to review 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.
