The stock of Intel (NAS:INTC, 30-year Financials) shows every sign of being modestly undervalued, 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 $54.97 per share and the market cap of $222 billion, Intel stock is believed to be modestly undervalued. GF Value for Intel is shown in the chart below.
Because Intel is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth, which averaged 12.3% over the past three years and is estimated to grow 1.33% 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. Intel has a cash-to-debt ratio of 0.62, which ranks worse than 74% of the companies in Semiconductors industry. Based on this, GuruFocus ranks Intel’s financial strength as 6 out of 10, suggesting fair balance sheet. This is the debt and cash of Intel over the past years:
It poses less risk to invest in profitable companies, especially those that have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. Intel has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $77.7 billion and earnings of $4.45 a share. Its operating margin is 29.05%, which ranks better than 94% of the companies in Semiconductors industry. Overall, GuruFocus ranks the profitability of Intel at 9 out of 10, which indicates strong profitability. This is the revenue and net income of Intel 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 stock performance of a company. A faster growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Intel is 12.3%, which ranks better than 75% of the companies in Semiconductors industry. The 3-year average EBITDA growth rate is 14.2%, which ranks in the middle range of the companies in Semiconductors industry.
Another way to look at the profitability of a company is to compare its return on invested capital and the weighted cost of capital. 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. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, Intel’s return on invested capital is 16.76, and its cost of capital is 4.54. The historical ROIC vs WACC comparison of Intel is shown below:
In conclusion, The stock of Intel (NAS:INTC, 30-year Financials) is believed to be modestly undervalued. The company's financial condition is fair and its profitability is strong. Its growth ranks in the middle range of the companies in Semiconductors industry. To learn more about Intel stock, you can check out its 30-year Financials here.
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