Zillow Group Inc (ZG, Financial) recently experienced a daily loss of 3.73%, contributing to a 3-month decline of 23.62%. This performance is juxtaposed with a Loss Per Share of $0.67. Investors are often left pondering whether such a stock is undervalued or if the market is signaling a red flag. The following analysis seeks to determine if Zillow Group stands as a modestly undervalued opportunity in the current market.
Company Introduction
Zillow Group Inc is a digital real estate titan that streamlines the process of buying, selling, renting, and financing properties. Operating across three business segments—Internet, Media & Technology (IMT), Mortgages, and Homes—Zillow Group leverages technology to deliver exceptional service to various stakeholders in the real estate ecosystem. With a current stock price of $37.71 and a Fair Value (GF Value) of $44.99, an analysis of Zillow Group's intrinsic value is imperative for investors seeking to capitalize on potential market discrepancies.
Summarize GF Value
The GF Value is a unique valuation metric that encapsulates the intrinsic value of a stock. It integrates historical trading multiples, an adjustment factor based on the company's past performance, and future business prospects to determine a stock's fair trading value. When a stock's price hovers significantly above the GF Value Line, it may be overvalued, suggesting a potentially lower future return. Conversely, a price well below the GF Value Line could indicate a stock that is undervalued, potentially offering higher future returns.
At a glance, Zillow Group (ZG, Financial) appears modestly undervalued. With a market cap of $9.10 billion and a GF Value suggesting a higher fair trading price, Zillow Group could present a valuable investment opportunity. The stock's long-term return may exceed its business growth due to its current undervaluation.
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Financial Strength
Evaluating the financial strength of a company is crucial before investing. Zillow Group's cash-to-debt ratio stands at 1.72, positioning it below 68.13% of its peers in the Interactive Media industry. With a financial strength rating of 6 out of 10, Zillow Group's financial standing is considered fair.
Profitability and Growth
Profitability is a significant indicator of a company's investment potential. Zillow Group has faced challenges in maintaining profitability, with an operating margin of -11.91%, ranking lower than 67.41% of competitors in the Interactive Media industry. Moreover, the company's growth trajectory has been concerning, with an average annual revenue decline of 15.3%, placing it unfavorably amongst its industry peers.
ROIC vs. WACC
The comparison between Return on Invested Capital (ROIC) and Weighted Average Cost of Capital (WACC) is another method to gauge profitability. Zillow Group's ROIC of -7.13 is less than its WACC of 14.24, suggesting that the company is not generating sufficient returns on its investments.
Conclusion
In summary, Zillow Group (ZG, Financial) emerges as modestly undervalued. Its financial health is stable, yet its profitability and growth prospects are less impressive, lagging behind many companies within the Interactive Media industry. Investors looking for more insights into Zillow Group's financials can explore 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.
