GoDaddy Inc (GDDY, Financial) recently reported a daily gain of 13.79%, contributing to a 22.79% increase over the past three months. With an Earnings Per Share (EPS) (EPS) of 2.07, investors may wonder if the stock is fairly valued. This article delves into an in-depth analysis of GoDaddy's valuation, providing valuable insights for potential investors. Let's explore.
Company Overview
GoDaddy Inc (GDDY, Financial), a leading provider of domain registration and aftermarket services, has evolved over the years to offer a diverse range of services. These include website hosting, security, design, business productivity tools, commerce solutions, and domain registry services. GoDaddy primarily targets micro- to small businesses, website design professionals, registrar peers, and domain investors. Since acquiring payment processing platform Poynt in 2021, the company has expanded into omnicommerce solutions, offering an online payment gateway and offline point-of-sale devices.
As of November 4, 2023, GoDaddy's stock price stands at $85.56, while its estimated fair value (GF Value) is $93.25, indicating the stock might be fairly valued. The following analysis provides a deeper understanding of GoDaddy's value, integrating financial assessment with essential company details.
Understanding the GF Value
The GF Value is a unique measure of a stock's intrinsic value, calculated based on three key factors:
- Historical multiples (PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow) that the stock has traded at.
- GuruFocus adjustment factor based on the company's past returns and growth.
- Future estimates of the business performance.
Our GF Value Line provides an overview of the fair value that the stock should ideally be traded at. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
Currently, GoDaddy (GDDY, Financial) appears to be fairly valued based on our GF Value Line. With a share price of $85.56, GoDaddy's stock aligns closely with our estimated fair value. This suggests that the long-term return of GoDaddy's stock is likely to be close to the rate of its business growth.
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Assessing Financial Strength
Investing in companies with poor financial strength can pose a high risk of permanent capital loss. Thus, it's crucial to review a company's financial strength before deciding to purchase shares. Metrics like the cash-to-debt ratio and interest coverage can provide valuable insights into its financial strength. GoDaddy has a cash-to-debt ratio of 0.15, ranking worse than 88.62% of 2741 companies in the Software industry. The overall financial strength of GoDaddy is 4 out of 10, indicating its financial strength is relatively poor.
Profitability and Growth
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. GoDaddy has been profitable 5 years over the past 10 years. With revenues of $4.20 billion and an Earnings Per Share (EPS) of $2.07 in the past 12 months, its operating margin of 12.77% is better than 78.36% of 2768 companies in the Software industry. Overall, GuruFocus ranks GoDaddy's profitability as fair.
Growth is a crucial factor in the valuation of a company. Companies that demonstrate profitable growth usually create value for their shareholders. GoDaddy's 3-year average revenue growth rate is better than 66.11% of 2396 companies in the Software industry. Its 3-year average EBITDA growth rate is 22.4%, which ranks better than 70.5% of 1993 companies in the Software industry.
ROIC vs WACC
Another method of determining the profitability of a company is to compare its return on invested capital (ROIC) to the weighted average cost of capital (WACC). ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. The WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, GoDaddy's ROIC is 7.03, and its cost of capital is 8.55.
Conclusion
In summary, the stock of GoDaddy (GDDY, Financial) shows every sign of being fairly valued. The company's financial condition is poor, and its profitability is fair. Its growth ranks better than 70.5% of 1993 companies in the Software industry. To learn more about GoDaddy stock, you can check out its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
