RealNetworks stock appears at – GuruFocus.com
RealNetworks’ stock (NAS: RNWK, 30-year-old Financials) gives all indications of being slightly overvalued, according to the GuruFocus value calculation. The GuruFocus Value is GuruFocus’s estimate of the fair value at which the stock is to trade. It is calculated based on the historical multiples at which the stock has traded, the company’s past growth, 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 may be poor. On the other hand, if it is significantly below the GF value line, its future return is likely to be higher. At its current price of $ 1.93 per share and market cap of $ 90.5 million, RealNetworks stock is showing signs of being slightly overvalued. The GF value for RealNetworks is shown in the table below.
Since RealNetworks is relatively overvalued, its long-term stock return is likely to be lower than its business growth.
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Since investing in companies with poor financial strength could result in a permanent loss of capital, investors should carefully consider the financial strength of a company before deciding whether or not to buy shares. Examining the cash-to-debt ratio and interest coverage can provide a good initial perspective on the financial strength of the business. RealNetworks has a cash-to-debt ratio of 1.87, which is worse than 71% of companies in the interactive media industry. Based on this, GuruFocus ranks RealNetworks financial strength at 3 out of 10, suggesting a poor track record. Here is RealNetworks’ debt and cash flow for the past several years:
It is less risky to invest in profitable companies, especially those whose profitability is constant over the long term. A business with high profit margins is generally a safer investment than one with low profit margins. RealNetworks has been profitable 1 in the past 10 years. In the past twelve months, the company achieved sales of $ 90.5 million and a loss of $ 0.27 per share. Its operating margin is -13.65%, which is worse than 73% of companies in the interactive media industry. Overall, RealNetworks’ profitability is ranked 1 in 10, indicating low profitability. Here is RealNetworks revenue and bottom line for the past few years:
Growth is probably one of the most important factors in the valuation of a business. GuruFocus research has shown 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. RealNetworks’ 3-year average revenue growth rate is worse than 69% of companies in the interactive media industry. RealNetworks’ 3-year average EBITDA growth rate is 36%, which is better than 69% of companies in the interactive media industry.
Another way to assess 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 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 should 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 shareholder value. Over the past 12 months, RealNetworks’ ROIC was -13.33, while its WACC was 9.64. RealNetworks’ historical ROIC vs WACC comparison is shown below:
In summary, RealNetworks (NAS: RNWK, 30 Financials) stock appears to be slightly overvalued. The company’s financial situation is bad and its profitability is bad. Its growth ranks better than 69% of companies in the interactive media industry. To learn more about the RealNetworks stock, you can view its 30-year financial data here.
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