Franklin Wireless Stock Is Believed To Be Modestly Undervalued
- By GF Value
The stock of Franklin Wireless (NAS:FKWL, 30-year Financials) is believed 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 $10.45 per share and the market cap of $121 million, Franklin Wireless stock gives every indication of being modestly undervalued. GF Value for Franklin Wireless is shown in the chart below.
Because Franklin Wireless is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth, which averaged 15.4% 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. Franklin Wireless has a cash-to-debt ratio of 76.79, which ranks better than 88% of the companies in Hardware industry. Based on this, GuruFocus ranks Franklin Wireless's financial strength as 7 out of 10, suggesting fair balance sheet. This is the debt and cash of Franklin Wireless over the past years:
It poses less risk to invest in profitable companies, especially those that have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. Franklin Wireless has been profitable 6 over the past 10 years. Over the past twelve months, the company had a revenue of $181.8 million and earnings of $1.66 a share. Its operating margin is 13.20%, which ranks better than 82% of the companies in Hardware industry. Overall, GuruFocus ranks the profitability of Franklin Wireless at 4 out of 10, which indicates poor profitability. This is the revenue and net income of Franklin Wireless over the past years:
Growth is probably one of the most important factors 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. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. Franklin Wireless's 3-year average revenue growth rate is better than 85% of the companies in Hardware industry. Franklin Wireless's 3-year average EBITDA growth rate is 65.2%, which ranks better than 95% of the companies in Hardware industry.
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average 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 return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, Franklin Wireless's ROIC is 378.40 while its WACC came in at 0.67. The historical ROIC vs WACC comparison of Franklin Wireless is shown below:
In summary, the stock of Franklin Wireless (NAS:FKWL, 30-year Financials) is estimated to be modestly undervalued. The company's financial condition is fair and its profitability is poor. Its growth ranks better than 95% of the companies in Hardware industry. To learn more about Franklin Wireless stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.
