The stock of Orbital Energy Group (NAS:OEG, 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 $5.21 per share and the market cap of $242.2 million, Orbital Energy Group stock gives every indication of being significantly overvalued. GF Value for Orbital Energy Group is shown in the chart below.
Because Orbital Energy Group is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 15.1% over the past five years.
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Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Thus, it is important to carefully review the financial strength of a company before deciding whether to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company. Orbital Energy Group has a cash-to-debt ratio of 0.12, which is worse than 69% of the companies in the industry of Utilities - Regulated. GuruFocus ranks the overall financial strength of Orbital Energy Group at 2 out of 10, which indicates that the financial strength of Orbital Energy Group is poor. This is the debt and cash of Orbital Energy Group over the past years:
It poses less risk to invest in profitable companies, especially those that have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. Orbital Energy Group has been profitable 0 over the past 10 years. Over the past twelve months, the company had a revenue of $38.4 million and loss of $0.93 a share. Its operating margin is -74.85%, which ranks in the bottom 10% of the companies in the industry of Utilities - Regulated. Overall, GuruFocus ranks the profitability of Orbital Energy Group at 1 out of 10, which indicates poor profitability. This is the revenue and net income of Orbital Energy 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 Orbital Energy Group is 15.1%, which ranks better than 82% of the companies in the industry of Utilities - Regulated. The 3-year average EBITDA growth rate is -15.9%, which ranks worse than 89% of the companies in the industry of Utilities - Regulated.
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average cost of capital. 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. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Orbital Energy Group's return on invested capital is -50.46, and its cost of capital is 7.94. The historical ROIC vs WACC comparison of Orbital Energy Group is shown below:
Overall, the stock of Orbital Energy Group (NAS:OEG, 30-year Financials) appears to be significantly overvalued. The company's financial condition is poor and its profitability is poor. Its growth ranks worse than 89% of the companies in the industry of Utilities - Regulated. To learn more about Orbital Energy Group stock, you can check out its 30-year Financials here.
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