– By GF value
AltiGen Communications stock (OTCPK: ATGN, 30-year financial data) is considered significantly overvalued, as calculated by GuruFocus Value. GuruFocus Value is GuruFocus’s estimate of the fair value at which the stock should trade. It is calculated based on the historical multiples at which the stock has traded, past growth in business and analysts’ estimates of the company’s future performance. If a stock’s price is significantly above the GF value line, it is overvalued and its future performance is likely to be poor. On the other hand, if it is significantly lower than the GF value line, its future return will probably be higher. At its current price of $ 2.03 per share and market cap of $ 46.8 million, AltiGen Communications’ stock would be significantly overvalued. The GF value for AltiGen Communications is shown in the table below.
Given that AltiGen Communications is significantly overvalued, its long-term stock return is likely to be much lower than the future growth of its business, which has averaged 9.2% over the past five years.
Companies with poor financial strength present investors with a high risk of permanent capital loss. To avoid a permanent loss of capital, an investor should do his research and consider the financial strength of a company before deciding to buy stocks. A company’s cash-to-debt ratio and interest coverage is a great way to understand its financial strength. AltiGen Communications has a cash-to-debt ratio of 3.83, which ranks better than 67% of companies in the hardware industry. The overall financial strength of AltiGen Communications is 8 out of 10, indicating that the financial strength of AltiGen Communications is strong. Here is AltiGen Communications’ debt and cash flow over the past few years:
Companies that have always been profitable over the long term pose less risk to investors wishing to buy stocks. Higher profit margins usually dictate a better investment compared to a business with lower profit margins. AltiGen Communications has been profitable 5 in the past 10 years. In the past twelve months, the company achieved sales of $ 11.8 million and earnings of $ 0.06 per share. Its operating margin is 19.67%, which ranks better than 92% of companies in the hardware industry. Overall, AltiGen Communications’ profitability is ranked 4 out of 10, indicating low profitability. Here is AltiGen Communications’ revenue and net income over the past few years:
Growth is probably one of the most important factors in the valuation of a business. GuruFocus research has found that growth is closely tied to the long-term performance of a company’s stocks. If a company’s business is growing, the business typically creates value for its shareholders, especially if the growth is profitable. Likewise, if the income and profits of a business decrease, the value of the business will decrease. AltiGen Communications Average revenue growth rate over 3 years is better than 75% of hardware industry companies. AltiGen Communications’ 3-year average EBITDA growth rate is 72.7%, which ranks better than 96% of companies in the hardware industry.
Another way to determine a company’s profitability is to compare its return on invested capital to the weighted average cost of capital. Return on invested capital (ROIC) measures the extent to which a business 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 of its security holders to fund its assets. When the ROIC is higher than the WACC, it means that the company is creating value for its shareholders. Over the past 12 months, AltiGen Communications’ return on invested capital is 12.61 and its cost of capital is 9.55. The historical comparison of AltiGen Communications’ ROIC and WACC is shown below:
In summary, the stock of AltiGen Communications (OTCPK: ATGN, Financials over 30 years) appears to be significantly overvalued. The company’s financial position is strong and its profitability is poor. Its growth ranks better than 96% of companies in the hardware industry. To learn more about the AltiGen Communications share, you can view its 30-year financial statements here.
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This article first appeared on GuruFocus.