Vicor Stock Is Believed To Be Significantly Overvalued
- By GF Value
The stock of Vicor (NAS:VICR, 30-year Financials) is estimated to be significantly overvalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock 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 $83.77 per share and the market cap of $3.6 billion, Vicor stock is believed to be significantly overvalued. GF Value for Vicor is shown in the chart below.
Because Vicor is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 5.8% over the past five years.
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Since investing in companies with low financial strength could result in permanent capital loss, investors must carefully review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. Vicor has a cash-to-debt ratio of 46.10, which ranks better than 86% of the companies in Hardware industry. Based on this, GuruFocus ranks Vicor's financial strength as 7 out of 10, suggesting fair balance sheet. This is the debt and cash of Vicor over the past years:
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Vicor has been profitable 6 over the past 10 years. Over the past twelve months, the company had a revenue of $296.6 million and earnings of $0.4 a share. Its operating margin is 5.86%, which ranks in the middle range of the companies in Hardware industry. Overall, the profitability of Vicor is ranked 4 out of 10, which indicates poor profitability. This is the revenue and net income of Vicor over the past years:
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Vicor is 5.8%, which ranks in the middle range of the companies in Hardware industry. The 3-year average EBITDA growth is 50.8%, which ranks better than 93% of the companies in Hardware industry.
Another way to look at the profitability of a company is to compare its return on invested capital and the weighted cost of capital. 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. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, Vicor's return on invested capital is 10.82, and its cost of capital is 7.78. The historical ROIC vs WACC comparison of Vicor is shown below:
In summary, Vicor (NAS:VICR, 30-year Financials) stock shows every sign of being significantly overvalued. The company's financial condition is fair and its profitability is poor. Its growth ranks better than 93% of the companies in Hardware industry. To learn more about Vicor stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.
