Qualys Stock Shows Every Sign Of Being Modestly Undervalued
- By GF Value
The stock of Qualys (NAS:QLYS, 30-year Financials) appears to be modestly undervalued, 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 $102.2 per share and the market cap of $4 billion, Qualys stock gives every indication of being modestly undervalued. GF Value for Qualys is shown in the chart below.
Because Qualys is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth, which averaged 15.6% over the past three years and is estimated to grow 10.26% 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. Qualys has a cash-to-debt ratio of 6.54, which ranks in the middle range of the companies in Software industry. Based on this, GuruFocus ranks Qualys's financial strength as 8 out of 10, suggesting strong balance sheet. This is the debt and cash of Qualys over the past years:
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. Qualys has been profitable 10 years over the past 10 years. During the past 12 months, the company had revenues of $373.5 million and earnings of $1.8 a share. Its operating margin of 19.69% better than 87% of the companies in Software industry. Overall, GuruFocus ranks Qualys's profitability as strong. This is the revenue and net income of Qualys 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 Qualys is 15.6%, which ranks better than 74% of the companies in Software industry. The 3-year average EBITDA growth rate is 30.2%, which ranks better than 75% of the companies in Software 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, Qualys's ROIC was 14.23, while its WACC came in at 6.05. The historical ROIC vs WACC comparison of Qualys is shown below:
To conclude, the stock of Qualys (NAS:QLYS, 30-year Financials) appears to be modestly undervalued. The company's financial condition is strong and its profitability is strong. Its growth ranks better than 75% of the companies in Software industry. To learn more about Qualys stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.
