Unveiling Gogo (GOGO)'s Value: Is It Really Priced Right? A Comprehensive Guide
Gogo Inc (NASDAQ:GOGO) recently reported a daily gain of 13.65%, despite a 3-month loss of 20.93%. With an Earnings Per Share (EPS) of 1.19, the question arises: Is the stock fairly valued? This article aims to answer this question through a detailed valuation analysis. We invite you to read on to gain a deeper understanding of Gogo's market value.
Company Introduction
Established in the US, Gogo Inc (NASDAQ:GOGO) has made its name as a leading in-flight connectivity system and service provider. Through its subsidiaries, Gogo offers aero communications, in-flight broadband, and wireless in-cabin digital entertainment solutions for the aviation industry. The company's business segments include; Commercial Aviation North America, Commercial Aviation Rest of World, and Business Aviation. Gogo provides connectivity and entertainment services to commercial airlines flying routes within North America, satellite-based connectivity and entertainment services to foreign-based commercial airlines and North American-based commercial airlines flying outside North America, and a variety of in-flight Internet connectivity and other voice and data communication products and services.
GF Value Analysis
The GF Value is a proprietary measure of a stock's intrinsic value, computed based on historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line denotes the stock's ideal 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. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher.
At its current price of $12.65 per share, Gogo has a market cap of $1.60 billion, and the stock is estimated to be fairly valued. Because Gogo is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth.
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Financial Strength
It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. Gogo has a cash-to-debt ratio of 0.14, which is worse than 67.43% of 393 companies in the Telecommunication Services industry. The overall financial strength of Gogo is 3 out of 10, which indicates that the financial strength of Gogo is poor.
Profitability and Growth
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Gogo has been profitable 2 years over the past 10 years. During the past 12 months, the company had revenues of $415.30 million and Earnings Per Share (EPS) of $1.19. Its operating margin of 33.95% is better than 93.8% of 387 companies in the Telecommunication Services industry. Overall, GuruFocus ranks Gogo's profitability as poor.
Growth is probably the most important factor in the valuation of a company. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Gogo is -7.6%, which ranks worse than 82.37% of 380 companies in the Telecommunication Services industry. The 3-year average EBITDA growth rate is 21.2%, which ranks better than 79.04% of 334 companies in the Telecommunication Services industry.
ROIC vs WACC
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). 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. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Gogo's ROIC was 37.47, while its WACC came in at 5.53.
Conclusion
In conclusion, the stock of Gogo (NASDAQ:GOGO) is estimated to be fairly valued. The company's financial condition is poor and its profitability is poor. Its growth ranks better than 79.04% of 334 companies in the Telecommunication Services industry. To learn more about Gogo stock, you can check out its 30-Year Financials here.
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This article first appeared on GuruFocus.
