With a significant daily gain of 27.63%, Snap Inc (SNAP, Financial) has caught the attention of investors, yet over the past three months, the stock has experienced a loss of 10.46%. This volatility raises the question: is Snap fairly valued? With a reported Loss Per Share of $0.81, determining the intrinsic value of Snap is crucial for investors. The following analysis aims to answer this question, examining Snap's valuation in depth.
Company Introduction
Snap Inc (SNAP, Financial) is the creator of Snapchat, a globally popular social networking app with over 400 million daily active users as of the end of 2023. Earning nearly all of its revenue from advertising, Snap's financial performance is closely tied to its user engagement and market reach. Despite a global user base, approximately 65% of Snap's sales come from North America. With the current stock price at $14.55 and a Fair Value (GF Value) of $15.56, it's imperative to scrutinize the company's valuation against its GF Value to ascertain if the current market price reflects Snap's intrinsic worth.
Summarize GF Value
The GF Value is a proprietary measure that determines the intrinsic value of a stock based on historical trading multiples, a GuruFocus adjustment factor that accounts for past performance and growth, and future business performance estimates. When a stock's price aligns closely with its GF Value, it suggests that the stock is fairly valued. Conversely, a significant deviation above the GF Value may indicate overvaluation, while a price well below may signal undervaluation. For Snap, with its shares currently trading at $14.55, the assessment indicates that the stock is fairly valued, suggesting that the long-term return of Snap's stock could align with the company's growth rate.
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Financial Strength
Investors must consider a company's financial strength to avoid the high risk of permanent capital loss. Key indicators such as the cash-to-debt ratio and interest coverage can provide insights into a company's financial resilience. Snap's cash-to-debt ratio is 0.75, ranking lower than 76.66% of companies in the Interactive Media industry. With an overall financial strength rating of 5 out of 10, Snap's financial condition is deemed fair.
Profitability and Growth
The long-term profitability of a company is a crucial factor for investors. Snap has not been consistently profitable over the past decade, with a revenue of $4.80 billion and a Loss Per Share of $0.81 in the last twelve months. Its operating margin of -28.39% is below industry standards, ranking lower than 78.9% of its peers. Overall, Snap's profitability is ranked 3 out of 10. In terms of growth, Snap's 3-year average annual revenue growth rate is 18.4%, which is commendable within its industry. However, the 3-year average EBITDA growth rate is -10.3%, indicating challenges in maintaining profitability.
ROIC vs WACC
Evaluating a company's Return on Invested Capital (ROIC) against its Weighted Average Cost of Capital (WACC) provides insight into its efficiency in generating returns relative to its capital costs. Ideally, a company's ROIC should exceed its WACC. Snap's ROIC for the past 12 months is -43.58, significantly lower than its WACC of 8.91, suggesting that the company is not generating adequate returns on its investments.
Conclusion
In conclusion, Snap Inc (SNAP, Financial) appears to be fairly valued according to current market conditions. Despite this, the company's financial health is only fair, and its profitability is poor. Snap's growth is also below average when compared to its industry peers. Investors seeking to understand Snap's financial standing in greater detail can explore 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.
