Varonis Systems (VRNS): A Hidden Gem or a Mirage? Unveiling Its True Intrinsic Value
Varonis Systems Inc (NASDAQ:VRNS) experienced a daily gain of 7.49%, with a 3-month gain of 23.73%. However, it reported a Loss Per Share of 1.06. This prompts the question: is the stock significantly undervalued? In this analysis, we delve into the valuation of Varonis Systems, providing you with insights to make informed investment decisions.
Company Overview
Varonis Systems is a cybersecurity vendor with a focus on data privacy and security. The New York-based firm, founded in 2004 and public since 2014, is currently transitioning to cloud-based software-as-a-service products. With a market cap of $3.60 billion and a stock price of $32.87 per share, the company's GF Value, our proprietary measure of fair value, is $54.31. This suggests that Varonis Systems (NASDAQ:VRNS) could be significantly undervalued.
Understanding the GF Value
The GF Value is our unique estimate of a stock's intrinsic value, calculated based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line provides a visual representation of a stock's fair trading value. If a stock price is significantly above the GF Value Line, it is likely overvalued, and its future return could be poor. Conversely, if it is significantly below the GF Value Line, its future return could be higher.
Our analysis suggests that the stock of Varonis Systems (NASDAQ:VRNS) is significantly undervalued. With its current price of $32.87 per share and a market cap of $3.60 billion, the future return of Varonis Systems' stock is likely to be much higher than its business growth.
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Financial Strength Analysis
When investing, it's crucial to examine the financial strength of a company. Investing in companies with poor financial strength carries a higher risk of permanent loss. One way to gauge a company's financial strength is by looking at its cash-to-debt ratio and interest coverage. Varonis Systems has a cash-to-debt ratio of 2.49, which is worse than 50.35% of 2729 companies in the Software industry. Its overall financial strength is 6 out of 10, indicating fair financial health.
Profitability and Growth Analysis
Investing in profitable companies, especially those with consistent profitability over the long term, is less risky. Companies with high profit margins are typically safer investments than those with low profit margins. Varonis Systems has been profitable 0 times over the past 10 years. Over the past twelve months, the company had revenue of $488.70 million and a Loss Per Share of $1.06. Its operating margin is -24.23%, ranking worse than 75.94% of 2760 companies in the Software industry. Overall, the profitability of Varonis Systems is ranked 3 out of 10, indicating poor profitability.
Growth is a crucial factor in a company's valuation. Our research shows that growth is closely correlated with long-term stock performance. A faster-growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Varonis Systems is 15.7%, ranking better than 66.71% of 2394 companies in the Software industry. However, the 3-year average EBITDA growth rate is -4.2%, ranking worse than 69.62% of 1988 companies in the Software industry.
ROIC vs WACC Analysis
Another method to determine a company's profitability is by comparing its return on invested capital (ROIC) to the weighted average 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. When ROIC is higher than WACC, it implies that the company is creating value for shareholders. For the past 12 months, Varonis Systems' ROIC is -57.64, and its WACC is 6.29.
Conclusion
In conclusion, the stock of Varonis Systems (NASDAQ:VRNS) appears to be significantly undervalued. The company's financial condition is fair, but its profitability is poor. Its growth ranks worse than 69.62% of 1988 companies in the Software industry. To learn more about Varonis Systems stock, you can check out its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
This article first appeared on GuruFocus.
