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NortonLifeLock Stock Shows Every Sign Of Being Fairly Valued

- By GF Value

The stock of NortonLifeLock (NAS:NLOK, 30-year Financials) appears to be fairly valued, 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 $21.095 per share and the market cap of $12.3 billion, NortonLifeLock stock is believed to be fairly valued. GF Value for NortonLifeLock is shown in the chart below.


NortonLifeLock Stock Shows Every Sign Of Being Fairly Valued
NortonLifeLock Stock Shows Every Sign Of Being Fairly Valued

Because NortonLifeLock is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which is estimated to grow 2.15% annually over the next three to five years.

Link: These companies may deliever higher future returns at reduced risk.

It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. NortonLifeLock has a cash-to-debt ratio of 0.29, which is worse than 87% of the companies in Software industry. The overall financial strength of NortonLifeLock is 3 out of 10, which indicates that the financial strength of NortonLifeLock is poor. This is the debt and cash of NortonLifeLock over the past years:

NortonLifeLock Stock Shows Every Sign Of Being Fairly Valued
NortonLifeLock Stock Shows Every Sign Of Being Fairly Valued

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. NortonLifeLock has been profitable 9 years over the past 10 years. During the past 12 months, the company had revenues of $2.5 billion and earnings of $0.96 a share. Its operating margin of 38.27% better than 97% of the companies in Software industry. Overall, GuruFocus ranks NortonLifeLock's profitability as fair. This is the revenue and net income of NortonLifeLock over the past years:

NortonLifeLock Stock Shows Every Sign Of Being Fairly Valued
NortonLifeLock Stock Shows Every Sign Of Being Fairly Valued

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 stock performance of a company. A faster growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of NortonLifeLock is -15.9%, which ranks worse than 86% of the companies in Software industry. The 3-year average EBITDA growth rate is 44.5%, which ranks better than 85% of the companies in Software industry.

One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average 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 return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, NortonLifeLock's ROIC is 10.44 while its WACC came in at 5.78. The historical ROIC vs WACC comparison of NortonLifeLock is shown below:

NortonLifeLock Stock Shows Every Sign Of Being Fairly Valued
NortonLifeLock Stock Shows Every Sign Of Being Fairly Valued

Overall, the stock of NortonLifeLock (NAS:NLOK, 30-year Financials) is estimated to be fairly valued. The company's financial condition is poor and its profitability is fair. Its growth ranks better than 85% of the companies in Software industry. To learn more about NortonLifeLock stock, you can check out its 30-year Financials here.

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This article first appeared on GuruFocus.