Is Ultralife Corp (ULBI) Significantly Overvalued?
With a daily gain of 30.05% and a 3-month gain of 134.92%, Ultralife Corp's (NASDAQ:ULBI) stock has been on a significant uptrend. The company's Earnings Per Share (EPS) stands at 0.17. Despite these positive indicators, the question remains: Is Ultralife Corp overvalued? In this article, we delve into the valuation analysis of Ultralife Corp to provide an answer to this question.
Understanding Ultralife Corp
Ultralife Corp provides a variety of products and services, including power solutions, communications, and electronics systems to clients worldwide. The company operates primarily in the government and defense, medical, safety and security, energy, and industrial sectors. Ultralife Corp designs, manufactures, installs, and maintains power and communications systems, including rechargeable and non-rechargeable batteries, charging systems, communications and electronics systems, and accessories. The company's segments include Battery and Energy Products, and Communications Systems, with the former generating the maximum revenue.
Decoding the GF Value of Ultralife (NASDAQ:ULBI)
The GF Value is a unique measure that estimates the intrinsic value of a stock. It considers historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line represents the fair trading value of the stock. If the stock price is significantly above the GF Value Line, it indicates overvaluation, suggesting poor future returns. Conversely, if the stock price is significantly below the GF Value Line, the stock may be undervalued, indicating higher future returns.
Currently, Ultralife (NASDAQ:ULBI) is significantly overvalued based on the GF Value. The stock's fair value is estimated considering historical multiples, an internal adjustment based on past growth, and analyst estimates of future business performance. With the current share price of $10.43, Ultralife stock appears to be significantly overvalued. As a result, the long-term return of its stock is likely to be much lower than its future business growth.
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Examining Ultralife's Financial Strength
To avoid a high risk of permanent capital loss, investors must review a company's financial strength before purchasing shares. The cash-to-debt ratio and interest coverage of a company provide valuable insights into its financial strength. Ultralife has a cash-to-debt ratio of 0.33, ranking worse than 76% of 2762 companies in the Industrial Products industry. Overall, Ultralife's financial strength is rated 7 out of 10, indicating fair financial strength.
Profitability and Growth of Ultralife
Investing in profitable companies, especially those demonstrating consistent profitability over the long term, is generally less risky. Ultralife has been profitable 6 over the past 10 years. Over the past twelve months, the company had a revenue of $144 million and Earnings Per Share (EPS) of $0.17. Its operating margin is 2.31%, ranking worse than 72.12% of 2798 companies in the Industrial Products industry. Overall, GuruFocus ranks Ultralife's profitability at 6 out of 10, indicating fair profitability.
Growth is a crucial factor in the valuation of a company. Ultralife's 3-year average revenue growth rate is better than 53.77% of 2665 companies in the Industrial Products industry. However, Ultralife's 3-year average EBITDA growth rate is -20.8%, ranking worse than 89.11% of 2360 companies in the Industrial Products industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted cost of capital (WACC) is another way to evaluate its profitability. 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 is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Ultralife's ROIC was 1.71, while its WACC came in at 9.1.
Conclusion
Overall, Ultralife (NASDAQ:ULBI) stock appears to be significantly overvalued. The company's financial condition is fair, and its profitability is fair. However, its growth ranks worse than 89.11% of 2360 companies in the Industrial Products industry. To learn more about Ultralife stock, you can check out its 30-Year Financials here.
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This article first appeared on GuruFocus.
