cbdMD Stock Appears To Be Modestly Undervalued
- By GF Value
The stock of cbdMD (AMEX:YCBD, 30-year Financials) appears to be modestly undervalued, 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 $2.78 per share and the market cap of $154.7 million, cbdMD stock is believed to be modestly undervalued. GF Value for cbdMD is shown in the chart below.
Because cbdMD is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth, which averaged 15.8% over the past three years and is estimated to grow 38.00% annually over the next three to five years.
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Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. cbdMD has a cash-to-debt ratio of 3.38, which which ranks better than 68% of the companies in Drug Manufacturers industry. The overall financial strength of cbdMD is 6 out of 10, which indicates that the financial strength of cbdMD is fair. This is the debt and cash of cbdMD 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. cbdMD has been profitable 1 over the past 10 years. Over the past twelve months, the company had a revenue of $44.1 million and loss of $0.13 a share. Its operating margin is -30.02%, which ranks worse than 75% of the companies in Drug Manufacturers industry. Overall, the profitability of cbdMD is ranked 1 out of 10, which indicates poor profitability. This is the revenue and net income of cbdMD over the past years:
Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term performance of a company's stock. 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 cbdMD is 15.8%, which ranks better than 77% of the companies in Drug Manufacturers industry. The 3-year average EBITDA growth rate is -52.6%, which ranks in the bottom 10% of the companies in Drug Manufacturers industry.
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, cbdMD's ROIC was -15.26, while its WACC came in at 11.39. The historical ROIC vs WACC comparison of cbdMD is shown below:
In short, cbdMD (AMEX:YCBD, 30-year Financials) stock gives every indication of being modestly undervalued. The company's financial condition is fair and its profitability is poor. Its growth ranks in the bottom 10% of the companies in Drug Manufacturers industry. To learn more about cbdMD stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.
