Inseego Stock Gives Every Indication Of Being Significantly Overvalued
- By GF Value
The stock of Inseego (NAS:INSG, 30-year Financials) appears to be significantly 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 $8.98 per share and the market cap of $915.4 million, Inseego stock shows every sign of being significantly overvalued. GF Value for Inseego is shown in the chart below.
Because Inseego is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which is estimated to grow 11.27% 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. Inseego has a cash-to-debt ratio of 0.24, which ranks worse than 88% of the companies in Hardware industry. Based on this, GuruFocus ranks Inseego's financial strength as 3 out of 10, suggesting poor balance sheet. This is the debt and cash of Inseego 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. Inseego has been profitable 0 over the past 10 years. Over the past twelve months, the company had a revenue of $313.8 million and loss of $1.18 a share. Its operating margin is -7.56%, which ranks worse than 81% of the companies in Hardware industry. Overall, GuruFocus ranks the profitability of Inseego at 1 out of 10, which indicates poor profitability. This is the revenue and net income of Inseego 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 Inseego is -4.4%, which ranks worse than 68% of the companies in Hardware industry. The 3-year average EBITDA growth rate is -152.3%, which ranks in the bottom 10% of the companies in Hardware 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, Inseego's ROIC was -20.25, while its WACC came in at 10.50. The historical ROIC vs WACC comparison of Inseego is shown below:
Overall, the stock of Inseego (NAS:INSG, 30-year Financials) appears to be significantly overvalued. The company's financial condition is poor and its profitability is poor. Its growth ranks in the bottom 10% of the companies in Hardware industry. To learn more about Inseego stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.
