- By GF Value
The stock of ASE Technology Holding Co (NYSE:ASX, 30-year Financials) is believed 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 $7.7 per share and the market cap of $16.5 billion, ASE Technology Holding Co stock appears to be modestly overvalued. GF Value for ASE Technology Holding Co is shown in the chart below.
Because ASE Technology Holding Co is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth, which averaged 17% over the past three years and is estimated to grow 12.59% annually over the next three to five years.
Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Thus, it is important to carefully review the financial strength of a company before deciding whether to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company. ASE Technology Holding Co has a cash-to-debt ratio of 0.20, which is in the bottom 10% of the companies in Semiconductors industry. GuruFocus ranks the overall financial strength of ASE Technology Holding Co at 4 out of 10, which indicates that the financial strength of ASE Technology Holding Co is poor. This is the debt and cash of ASE Technology Holding Co over the past years:
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. ASE Technology Holding Co has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $16.4 billion and earnings of $0.237 a share. Its operating margin is 7.31%, which ranks in the middle range of the companies in Semiconductors industry. Overall, the profitability of ASE Technology Holding Co is ranked 8 out of 10, which indicates strong profitability. This is the revenue and net income of ASE Technology Holding Co over the past years:
Growth is probably one of the most important factors 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. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. ASE Technology Holding Co's 3-year average revenue growth rate is better than 83% of the companies in Semiconductors industry. ASE Technology Holding Co's 3-year average EBITDA growth rate is 12.1%, which ranks in the middle range of the companies in Semiconductors industry.
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted 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 ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, ASE Technology Holding Co's ROIC was 5.90, while its WACC came in at 7.56. The historical ROIC vs WACC comparison of ASE Technology Holding Co is shown below:
In closing, the stock of ASE Technology Holding Co (NYSE:ASX, 30-year Financials) is believed to be modestly overvalued. The company's financial condition is poor and its profitability is strong. Its growth ranks in the middle range of the companies in Semiconductors industry. To learn more about ASE Technology Holding Co stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.