- By GF Value
The stock of Citrix Systems (NAS:CTXS, 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 $119.14 per share and the market cap of $14.8 billion, Citrix Systems stock is believed to be modestly undervalued. GF Value for Citrix Systems is shown in the chart below.
Because Citrix Systems is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth, which averaged 12.2% over the past three years and is estimated to grow 6.28% annually over the next three to five years.
Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. Citrix Systems has a cash-to-debt ratio of 0.14, which which ranks in the bottom 10% of the companies in Software industry. The overall financial strength of Citrix Systems is 4 out of 10, which indicates that the financial strength of Citrix Systems is poor. This is the debt and cash of Citrix Systems over the past years:
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Citrix Systems has been profitable 9 years over the past 10 years. During the past 12 months, the company had revenues of $3.2 billion and earnings of $3.29 a share. Its operating margin of 16.15% better than 83% of the companies in Software industry. Overall, GuruFocus ranks Citrix Systems's profitability as strong. This is the revenue and net income of Citrix Systems 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 Citrix Systems is 12.2%, which ranks better than 67% of the companies in Software industry. The 3-year average EBITDA growth rate is 7.1%, which ranks in the middle range 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, Citrix Systems's return on invested capital is 9.86, and its cost of capital is 2.25. The historical ROIC vs WACC comparison of Citrix Systems is shown below:
In conclusion, The stock of Citrix Systems (NAS:CTXS, 30-year Financials) shows every sign of being modestly undervalued. The company's financial condition is poor and its profitability is strong. Its growth ranks in the middle range of the companies in Software industry. To learn more about Citrix Systems stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.