Liberty Formula One Group (FWONA): A Hidden Gem in the Stock Market?
With a daily gain of 7.85%, a 3-month loss of -5.94%, and an Earnings Per Share (EPS) of 1.8, the stock of Liberty Formula One Group (NASDAQ:FWONA) has attracted significant attention. This raises a crucial question: Is the stock significantly undervalued? In this article, we present an in-depth valuation analysis of Liberty Formula One Group, providing valuable insights for potential investors.
Company Snapshot
Liberty Formula One Group controls the exclusive commercial and promotional rights to the FIA Formula One World Championship series, and monetizes these rights as its primary business. The firm, a subsidiary of Liberty Media, was purchased in January 2017. With its current price of $60.98 per share and a market cap of $15.60 billion, the stock appears significantly undervalued compared to its GF Value of $104.4.
Here is the income breakdown of Liberty Formula One Group:
Understanding the GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It is calculated based on historical multiples, a GuruFocus adjustment factor, and future business performance estimates. Generally, if a stock price is significantly above the GF Value Line, it is considered overvalued with poor future returns. Conversely, if it is significantly below the GF Value Line, it is considered undervalued with high future returns.
For Liberty Formula One Group, the stock price is significantly below the GF Value Line, indicating that it is significantly undervalued. Thus, the long-term return of its stock is likely to be much higher than its business growth.
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Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's crucial to review a company's financial strength before deciding to buy shares. Liberty Formula One Group has a cash-to-debt ratio of 0.51, ranking worse than 62.78% of 994 companies in the Media - Diversified industry. Based on this, GuruFocus ranks Liberty Formula One Group's financial strength as 6 out of 10, suggesting a fair balance sheet.
This is the debt and cash of Liberty Formula One Group over the past years:
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is generally less risky. Liberty Formula One Group has been profitable 4 times over the past 10 years. Over the past twelve months, the company had a revenue of $4.30 billion and an Earnings Per Share (EPS) of $1.8. Its operating margin is 12.96%, which ranks better than 80.39% of 1025 companies in the Media - Diversified industry. Overall, the profitability of Liberty Formula One Group is ranked 4 out of 10, indicating poor profitability.
Growth is one of the most important factors in the valuation of a company. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Liberty Formula One Group is 6.7%, which ranks better than 68.43% of 944 companies in the Media - Diversified industry. The 3-year average EBITDA growth is 43.4%, which ranks better than 85.81% of 761 companies in the Media - Diversified 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, Liberty Formula One Group's return on invested capital is 8.08, and its cost of capital is 9.17.
The historical ROIC vs WACC comparison of Liberty Formula One Group is shown below:
Conclusion
In conclusion, the stock of Liberty Formula One Group (NASDAQ:FWONA) gives every indication of being significantly undervalued. The company's financial condition is fair, and its profitability is poor. Its growth ranks better than 85.81% of 761 companies in the Media - Diversified industry. To learn more about Liberty Formula One Group stock, you can check out its 30-Year Financials here.
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This article first appeared on GuruFocus.
