Turkcell Iletisim Hizmetleri AS (TKC): A Detailed Examination of Its Overvaluation
Turkcell Iletisim Hizmetleri AS (NYSE:TKC) has experienced a daily gain of 1.69% and a three-month gain of 33.75%. The Earnings Per Share (EPS) stands at 0.42. Given these figures, one might wonder if the stock is significantly overvalued. This article aims to answer this question through a comprehensive valuation analysis. Let's dive in.
Company Overview
Turkcell Iletisim Hizmetleri AS provides mobile telephone services primarily in Turkey. With its global system for mobile communications networks, the firm offers mobile voice and data services. Turkcell boasts 26 million prepaid subscribers and more than 9 million postpaid subscribers. The company also has investments in Azerbaijan, Georgia, Kazakhstan, Moldova, and Ukraine. Comparing the stock price of $5.4 with the GF Value of $2.4, it appears that the stock may be significantly overvalued.
Understanding GF Value
The GF Value is a unique measure of a stock's intrinsic value, calculated based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher. Currently, Turkcell Iletisim Hizmetleri AS (NYSE:TKC) is believed to be significantly overvalued.
Because Turkcell Iletisim Hizmetleri AS is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth.
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 deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to gauge its financial strength. Turkcell Iletisim Hizmetleri AS has a cash-to-debt ratio of 0.6, which ranks better than 62.34% of 393 companies in the Telecommunication Services industry.
Profitability and Growth
Investing in profitable companies, especially those that have demonstrated consistent profitability over the long term, poses less risk. Turkcell Iletisim Hizmetleri AS has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $3.90 billion and an Earnings Per Share (EPS) of $0.42. Its operating margin is 12.79%, which ranks better than 58.66% of 387 companies in the Telecommunication Services industry.
One of the most important factors in the valuation of a company is growth. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Turkcell Iletisim Hizmetleri AS is 34.8%, which ranks better than 93.4% of 379 companies in the Telecommunication Services industry.
ROIC vs WACC
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, Turkcell Iletisim Hizmetleri AS's return on invested capital is 12.86, and its cost of capital is 8.73.
Conclusion
In conclusion, the stock of Turkcell Iletisim Hizmetleri AS (NYSE:TKC) is believed to be significantly overvalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 91.04% of 335 companies in the Telecommunication Services industry. To learn more about Turkcell Iletisim Hizmetleri AS stock, you can check out its 30-Year Financials here.
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This article first appeared on GuruFocus.
