Unveiling Elastic NV (ESTC)'s Value: Is It Really Priced Right? A Comprehensive Guide
On September 6, 2023, Elastic NV (NYSE:ESTC) recorded a daily gain of 3.33%, marking a 6.45% increase in the past three months. However, the company's Loss Per Share stands at 2.24, raising questions about its valuation. Is the stock significantly undervalued? Let's delve into a comprehensive analysis to find out.
Company Overview
Elastic NV is a Mountain View, California-based software company specializing in search-adjacent products. The firm's primary focus is on enterprise search, observability, and security. Its search engine processes both structured and unstructured data, providing valuable insights. At a market cap of $7.60 billion and a current stock price of $77.52, the company's shares appear to be significantly undervalued compared to the GuruFocus Value (GF Value) of $118.59.
Understanding the GF Value
The GF Value is a unique measure of a stock's intrinsic value. It's calculated based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line provides an overview of the stock's fair trading value. 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.
Considering these factors, Elastic NV (NYSE:ESTC) appears to be significantly undervalued. This suggests that the long-term return of its stock is likely to be much higher than its business growth.
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Evaluating Elastic NV's Financial Strength
Investing in companies with poor financial strength can lead to a high risk of permanent capital loss. Therefore, it's crucial to review a company's financial strength before purchasing its shares. Elastic NV's cash-to-debt ratio stands at 1.62, ranking it lower than 58.35% of 2737 companies in the Software industry. Overall, Elastic NV's financial strength is fair, with a score of 5 out of 10.
Profitability and Growth
Investing in profitable companies carries less risk, especially in those that have demonstrated consistent profitability over the long term. Elastic NV has been profitable 0 years over the past 10 years, with revenues of $1.10 billion and a Loss Per Share of $2.24 in the past 12 months. Its operating margin of -14.63% is worse than 70.17% of 2722 companies in the Software industry. Overall, Elastic NV's profitability is poor.
Growth is a critical factor in a company's valuation. A faster-growing company creates more value for shareholders, especially if the growth is profitable. Elastic NV's 3-year average annual revenue growth is 27.2%, ranking it better than 82.74% of 2393 companies in the Software industry. However, its 3-year average EBITDA growth rate is 3.3%, worse than 60.85% of 1990 companies in the Software industry.
Another way to evaluate a company's profitability is by comparing its return on invested capital (ROIC) and the weighted 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. For the past 12 months, Elastic NV's ROIC stands at -19.57, and its WACC is 8.41.
Conclusion
In summary, Elastic NV (NYSE:ESTC) stock shows every sign of being significantly undervalued. Although the company's financial condition is fair, its profitability is poor, and its growth ranks worse than 60.85% of 1990 companies in the Software industry. For more information about Elastic NV stock, you can check out its 30-Year Financials here.
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This article first appeared on GuruFocus.
