The stock of Coda Octopus Group (NAS:CODA, 30-year Financials) is estimated to be possible value trap, 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 $8.01 per share and the market cap of $86.1 million, Coda Octopus Group stock gives every indication of being possible value trap. GF Value for Coda Octopus Group is shown in the chart below.
The reason we think that Coda Octopus Group stock might be a value trap is because
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Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. Coda Octopus Group has a cash-to-debt ratio of 18.17, which which ranks better than 85% of the companies in Aerospace & Defense industry. The overall financial strength of Coda Octopus Group is 8 out of 10, which indicates that the financial strength of Coda Octopus Group is strong. This is the debt and cash of Coda Octopus Group 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. Coda Octopus Group has been profitable 10 years over the past 10 years. During the past 12 months, the company had revenues of $18.4 million and earnings of $0.28 a share. Its operating margin of 12.32% better than 76% of the companies in Aerospace & Defense industry. Overall, GuruFocus ranks Coda Octopus Group's profitability as fair. This is the revenue and net income of Coda Octopus Group 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 stock performance of a company. A faster growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Coda Octopus Group is -2.9%, which ranks worse than 68% of the companies in Aerospace & Defense industry. The 3-year average EBITDA growth rate is -10.3%, which ranks worse than 74% of the companies in Aerospace & Defense 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, Coda Octopus Group's ROIC is 10.88 while its WACC came in at 10.82. The historical ROIC vs WACC comparison of Coda Octopus Group is shown below:
Overall, Coda Octopus Group (NAS:CODA, 30-year Financials) stock appears to be possible value trap. The company's financial condition is strong and its profitability is fair. Its growth ranks worse than 74% of the companies in Aerospace & Defense industry. To learn more about Coda Octopus Group stock, you can check out its 30-year Financials here.
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