PTC Stock Gives Every Indication Of Being Significantly Overvalued
- By GF Value
The stock of PTC (NAS:PTC, 30-year Financials) shows every sign of being 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 $146.04 per share and the market cap of $17.1 billion, PTC stock gives every indication of being significantly overvalued. GF Value for PTC is shown in the chart below.
Because PTC is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 8.1% over the past three years and is estimated to grow 12.68% annually over the next three to five years.
Link: These companies may deliever higher future returns at reduced risk.
It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. PTC has a cash-to-debt ratio of 0.33, which is worse than 85% of the companies in Software industry. The overall financial strength of PTC is 5 out of 10, which indicates that the financial strength of PTC is fair. This is the debt and cash of PTC over the past years:
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. PTC has been profitable 7 years over the past 10 years. During the past 12 months, the company had revenues of $1.5 billion and earnings of $1.01 a share. Its operating margin of 18.94% better than 86% of the companies in Software industry. Overall, GuruFocus ranks PTC's profitability as fair. This is the revenue and net income of PTC 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 PTC is 8.1%, which ranks in the middle range of the companies in Software industry. The 3-year average EBITDA growth rate is 37.8%, which ranks better than 81% of the companies in Software 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, PTC's ROIC was 5.65, while its WACC came in at 9.04. The historical ROIC vs WACC comparison of PTC is shown below:
In summary, the stock of PTC (NAS:PTC, 30-year Financials) is believed to be significantly overvalued. The company's financial condition is fair and its profitability is fair. Its growth ranks better than 81% of the companies in Software industry. To learn more about PTC stock, you can check out its 30-year Financials here.
To find out the high quality companies that may deliever above average returns, please check out GuruFocus High Quality Low Capex Screener.
This article first appeared on GuruFocus.
