Unveiling Formula Systems (1985) (FORTY)'s Value: Is It Really Priced Right? A Comprehensive Guide
Formula Systems (1985) Ltd (NASDAQ:FORTY) witnessed a daily gain of 2.17% and a 3-month gain of 10.22%. With an Earnings Per Share (EPS) (EPS) of 4.21, the question arises: is the stock modestly undervalued? We will delve into the valuation analysis of Formula Systems (1985) to answer this question. Read on for an in-depth assessment.
Company Overview
Formula Systems (1985) Ltd is a global IT company that, through its subsidiaries, provides software development and workforce management services. The majority of the company's revenue comes from Israel. The current stock price stands at $74.99, while our GF Value estimates its fair value at $99.83. This discrepancy suggests that Formula Systems (1985) may be modestly undervalued.
Understanding GF Value
The GF Value is a proprietary measure that estimates a stock's intrinsic value based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line provides a visual guide of the stock's fair trading value.
According to our GF Value calculation, Formula Systems (1985) (NASDAQ:FORTY) appears to be modestly undervalued. This conclusion is based on the stock's historical trading multiples, past business growth, and analyst estimates of future business performance. The current price of $74.99 per share and the market cap of $1.10 billion suggest that the stock of Formula Systems (1985) is trading below its intrinsic value.
Because Formula Systems (1985) is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth.
Financial Strength
Assessing a company's financial strength is crucial before investing. Companies with poor financial strength pose a higher risk of permanent loss. Factors such as the cash-to-debt ratio and interest coverage can provide insights into a company's financial health. Formula Systems (1985) has a cash-to-debt ratio of 0.65, which is lower than 72.52% of 2737 companies in the Software industry. The overall financial strength of Formula Systems (1985) is 6 out of 10, which indicates fair financial health.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, poses less risk. Formula Systems (1985) has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $2.60 billion and Earnings Per Share (EPS) of $4.21. Its operating margin is 9.18%, which ranks better than 69.31% of 2721 companies in the Software industry. Overall, GuruFocus ranks the profitability of Formula Systems (1985) at 9 out of 10, indicating strong profitability.
Growth is a crucial factor in a company's valuation. A faster-growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Formula Systems (1985) is 14.4%, which ranks better than 64.16% of 2394 companies in the Software industry. The 3-year average EBITDA growth rate is 20.1%, which ranks better than 67.59% of 1993 companies in the Software industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can provide insights into 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 exceeds the WACC, the company is likely creating value for its shareholders. During the past 12 months, Formula Systems (1985)'s ROIC was 8.98 while its WACC came in at 6.65.
Conclusion
In conclusion, the stock of Formula Systems (1985) appears to be modestly undervalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 67.59% of 1993 companies in the Software industry. To learn more about Formula Systems (1985) stock, you can check out its 30-Year Financials here.
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This article first appeared on GuruFocus.
