Photronics (PLAB): A Comprehensive Analysis of Its Market Value
Photronics Inc (NASDAQ:PLAB) experienced a daily loss of 11.02%, and a 3-month loss of 6.95%. With an Earnings Per Share (EPS) of 1.99, the question arises: Is the stock fairly valued? Let's delve into a valuation analysis to answer this question.
Company Overview
Photronics Inc is a U.S.-based company engaged in manufacturing photomasks, essential components in the manufacture of integrated circuits and flat-panel displays. The majority of its revenue comes from products designed for integrated circuits production. The company has a global reach, with assets located in Taiwan, Korea, and the United States, and Taiwan contributing the majority of total revenue. Photronics' current stock price is $20.91, and the GF Value, an estimation of fair value, is $20.25, indicating that the stock is fairly valued.
Understanding GF Value
The GF Value is a proprietary measure that represents the intrinsic value of a stock. It is calculated considering historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line on our summary page gives an overview of the fair value that the stock should be traded at.
Photronics (NASDAQ:PLAB) appears to be fairly valued according to the GF Value. This valuation is based on historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. A stock price significantly above the GF Value Line may indicate overvaluation and poor future returns. Conversely, a stock price significantly below the GF Value Line may suggest undervaluation and high future returns. With a market cap of $1.30 billion, Photronics seems to be fairly valued at its current price of $20.91 per share.
Given that Photronics is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth.
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Assessing Financial Strength
Companies with poor financial strength pose a high risk of permanent capital loss. To avoid this, it's crucial to review a company's financial strength before purchasing shares. Key metrics for understanding financial strength include the cash-to-debt ratio and interest coverage. Photronics boasts a cash-to-debt ratio of 14.57, ranking better than 73.85% of 895 companies in the Semiconductors industry. This indicates that the financial strength of Photronics is strong.
Profitability and Growth
Investing in profitable companies carries less risk, especially if the company has demonstrated consistent profitability over the long term. Photronics has been profitable 10 years over the past 10 years. With revenues of $870.60 million and an operating margin of 28.4% over the past 12 months, it outperforms 91.68% of 938 companies in the Semiconductors industry.
Growth is a critical factor in a company's valuation. The faster a company is growing, the more likely it is to be creating value for shareholders. The 3-year average annual revenue growth rate of Photronics is 19.2%, ranking better than 67.21% of 863 companies in the Semiconductors industry. The 3-year average EBITDA growth rate is 38.7%, ranking better than 71.45% of 767 companies in the Semiconductors industry.
ROIC vs WACC
A company's profitability can also be evaluated by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). 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. Over the past 12 months, Photronics's ROIC was 21.89, while its WACC was 12.95.
Conclusion
In conclusion, Photronics (NASDAQ:PLAB) appears to be fairly valued. The company's financial condition is strong, and its profitability is robust. Its growth ranks better than 71.45% of 767 companies in the Semiconductors industry. To learn more about Photronics stock, you can check out its 30-Year Financials here.
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This article first appeared on GuruFocus.
