Unveiling EchoStar (SATS)'s Value: Is It Really Priced Right? A Comprehensive Guide
EchoStar Corp (NASDAQ:SATS) experienced a daily gain of 5.91%, and a 3-month gain of 8.98%. Its Earnings Per Share (EPS) stands at 1.34. This raises a critical question: is EchoStar (NASDAQ:SATS) modestly undervalued? In the following analysis, we will delve into EchoStar's financial performance and valuation metrics to provide an answer.
Company Introduction
EchoStar Corporation is a reputable provider of broadband technology and video delivery solutions for both home and office use. The company operates in two segments: Hughes, which provides satellite broadband Internet access to North American customers, and EchoStar Satellite Services, which uses owned and leased in-orbit satellites to provide services primarily to DISH Network. EchoStar's stock price is currently at $19.01, while its GF Value, an estimation of fair value, stands at $25.59. This comparison suggests that EchoStar may be undervalued, providing a potential opportunity for investors.
Understanding the GF Value
The GF Value is a unique measure that represents the current intrinsic value of a stock. It's calculated based on three key factors: historical multiples that the stock has traded at, a GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of the business performance. The GF Value Line on our summary page provides an overview of the fair value that the stock should ideally be traded at. If the stock price 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.
Based on GuruFocus' valuation method, EchoStar (NASDAQ:SATS) appears to be modestly undervalued. The GF Value estimates the stock's fair value based on historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. At its current price of $19.01 per share, EchoStar stock appears to be modestly undervalued. As EchoStar is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth.
Link: These companies may deliver higher future returns at reduced risk.
Evaluating EchoStar's Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's crucial to review a company's financial strength before deciding to buy shares. EchoStar has a cash-to-debt ratio of 1.16, which ranks worse than 52.74% of 2374 companies in the Hardware industry. Based on this, GuruFocus ranks EchoStar's financial strength as 6 out of 10, suggesting a fair balance sheet.
Profitability and Growth
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. EchoStar has been profitable 7 over the past 10 years. Its Earnings Per Share (EPS) stands at $1.34, and it has an operating margin of 9.23%, which ranks better than 74.13% of 2443 companies in the Hardware industry. Overall, EchoStar's profitability is ranked 7 out of 10, indicating fair profitability.
Growth is a critical factor in the valuation of a company. EchoStar's growth ranks better than 57.47% of 2337 companies in the Hardware industry, with a 3-year average annual revenue growth rate of 6.8%. However, its 3-year average EBITDA growth rate is 4.9%, which ranks worse than 60.93% of 1963 companies in the Hardware industry.
ROIC vs WACC
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). EchoStar's ROIC is 2.57 while its WACC came in at 5.46. If the ROIC exceeds the WACC, the company is likely creating value for its shareholders.
Conclusion
Overall, EchoStar (NASDAQ:SATS) stock appears to be modestly undervalued. The company's financial condition is fair, and its profitability is fair. Its growth ranks worse than 60.93% of 1963 companies in the Hardware industry. To learn more about EchoStar stock, you can check out its 30-Year Financials here.
To find out the high-quality companies that may deliver above-average returns, please check out GuruFocus High Quality Low Capex Screener.
This article first appeared on GuruFocus.
