The stock of Sify Technologies (NAS:SIFY, 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 $2.93 per share and the market cap of $525.1 million, Sify Technologies stock is believed to be significantly overvalued. GF Value for Sify Technologies is shown in the chart below.
Because Sify Technologies is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which is estimated to grow 9.31% annually over the next three to five years.
Link: These companies may deliever higher future returns at reduced risk.
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. Sify Technologies has a cash-to-debt ratio of 0.35, which which ranks in the middle range of the companies in Telecommunication Services industry. The overall financial strength of Sify Technologies is 4 out of 10, which indicates that the financial strength of Sify Technologies is poor. This is the debt and cash of Sify Technologies over the past years:
It is less risky to invest in profitable companies, especially those with consistent profitability over long term. A company with high profit margins is usually a safer investment than those with low profit margins. Sify Technologies has been profitable 8 over the past 10 years. Over the past twelve months, the company had a revenue of $312.2 million and earnings of $0.061 a share. Its operating margin is 9.00%, which ranks in the middle range of the companies in Telecommunication Services industry. Overall, the profitability of Sify Technologies is ranked 6 out of 10, which indicates fair profitability. This is the revenue and net income of Sify Technologies over the past years:
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Sify Technologies is -4.2%, which ranks worse than 71% of the companies in Telecommunication Services industry. The 3-year average EBITDA growth is 2.9%, which ranks in the middle range of the companies in Telecommunication Services industry.
Another way to evaluate 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 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 ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Sify Technologies's ROIC was 5.40, while its WACC came in at 12.94. The historical ROIC vs WACC comparison of Sify Technologies is shown below:
In closing, the stock of Sify Technologies (NAS:SIFY, 30-year Financials) shows every sign of being significantly overvalued. The company's financial condition is poor and its profitability is fair. Its growth ranks in the middle range of the companies in Telecommunication Services industry. To learn more about Sify Technologies stock, you can check out its 30-year Financials here.
To find out the high quality companies that may deliever above average returns, please check out GuruFocus High Quality Low Capex Screener.
