- By GF Value
The stock of Blue Prism Group PLC (OTCPK:BPRMF, 30-year Financials) is estimated to be possible value trap, 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 $15 per share and the market cap of $1.4 billion, Blue Prism Group PLC stock is believed to be possible value trap. GF Value for Blue Prism Group PLC is shown in the chart below.
The reason we think that Blue Prism Group PLC stock might be a value trap is because its Piotroski F-score is only 3, out of the total of 9. Such a low Piotroski F-score indicates the company is getting worse in multiple aspects in the areas of profitability, funding and efficiency. In this case, investors should look beyond the low valuation of the company and make sure it has no long-term risks. To learn more about how the Piotroski F-score measures the business trend of a company, please go here.
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. Blue Prism Group PLC has a cash-to-debt ratio of 34.40, which ranks better than 77% of the companies in Software industry. Based on this, GuruFocus ranks Blue Prism Group PLC's financial strength as 6 out of 10, suggesting fair balance sheet. This is the debt and cash of Blue Prism Group PLC over the past years:
It is less risky to invest in profitable companies, especially those with consistent profitability over long term. A company with high profit margins is usually a safer investment than those with low profit margins. Blue Prism Group PLC has been profitable 0 over the past 10 years. Over the past twelve months, the company had a revenue of $179.8 million and loss of $1.161 a share. Its operating margin is -53.75%, which ranks worse than 84% of the companies in Software industry. Overall, the profitability of Blue Prism Group PLC is ranked 3 out of 10, which indicates poor profitability. This is the revenue and net income of Blue Prism Group PLC 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 performance of a company's stock. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Blue Prism Group PLC is 59.9%, which ranks better than 96% of the companies in Software industry. The 3-year average EBITDA growth rate is -73.6%, which ranks in the bottom 10% of the companies in Software industry.
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average 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. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Blue Prism Group PLC's return on invested capital is -43.79, and its cost of capital is 5.98. The historical ROIC vs WACC comparison of Blue Prism Group PLC is shown below:
In conclusion, Blue Prism Group PLC (OTCPK:BPRMF, 30-year Financials) stock is believed to be possible value trap. The company's financial condition is fair and its profitability is poor. Its growth ranks in the bottom 10% of the companies in Software industry. To learn more about Blue Prism Group PLC stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.