Harmonic (HLIT): A Modestly Undervalued Gem in the Hardware Industry?
Harmonic Inc (NASDAQ:HLIT) has recently experienced a daily gain of 5.12% and a 3-month loss of -35.63%. With an Earnings Per Share (EPS) of 0.18, we explore the question: Is Harmonic (NASDAQ:HLIT) modestly undervalued? This article presents a comprehensive valuation analysis of Harmonic, offering valuable insights into its market performance and intrinsic value.
Company Overview
Harmonic Inc designs and manufactures video infrastructure products and system solutions to deliver video and broadband services to consumer devices. The firm operates in two segments: Video, which sells video processing, production, and playout solutions to cable operators and satellite and telecommunications providers; and Broadband, which sells broadband access solutions and related services. Most of the company's revenue is generated from the United States. With a current stock price of $10.16 per share and a market cap of $1.10 billion, Harmonic's GF Value stands at $12.04, indicating a potential undervaluation.
Understanding the GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock, calculated based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line gives an overview of the fair value that the stock should be traded at.
According to GuruFocus Value calculation, Harmonic (NASDAQ:HLIT) appears to be modestly undervalued. 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. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher. Given Harmonic's current price of $10.16 per share, it appears to be modestly undervalued, suggesting that the long-term return of its stock is likely to be higher than its business growth.
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Financial Strength Analysis
Before investing in a company, it's crucial to assess its financial strength. Investing in companies with poor financial strength can lead to a higher risk of permanent loss. Harmonic's cash-to-debt ratio of 0.45, which is worse than 75.23% of companies in the Hardware industry, and its overall financial strength of 6 out of 10, indicate fair financial health.
Profitability and Growth
Investing in profitable companies, especially those with consistent long-term profitability and high-profit margins, usually poses less risk. Harmonic has been profitable 3 years over the past decade. With a revenue of $633.70 million in the past twelve months and an operating margin of 8%, Harmonic's profitability ranks better than 69.02% of companies in the Hardware industry. However, its overall profitability rank is 4 out of 10, indicating poor profitability.
Growth is a crucial factor in a company's valuation. Harmonic's 3-year average revenue growth rate is better than 58.66% of companies in the Hardware industry, and its 3-year average EBITDA growth rate of 26% ranks better than 73.04% of companies in the industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can also evaluate its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. 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 exceeds the WACC, the company is likely creating value for its shareholders. During the past 12 months, Harmonic's ROIC was 4.19, while its WACC was 8.86.
Conclusion
Overall, Harmonic (NASDAQ:HLIT) stock appears to be modestly undervalued. The company's financial condition is fair, its profitability is poor, but its growth ranks better than 73.04% of companies in the Hardware industry. To learn more about Harmonic stock, you can check out 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.
This article first appeared on GuruFocus.
