The stock of Liberty SiriusXM Group (NAS:LSXMA, 30-year Financials) is estimated to be modestly undervalued, 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 $40.38 per share and the market cap of $15.2 billion, Liberty SiriusXM Group stock gives every indication of being modestly undervalued. GF Value for Liberty SiriusXM Group is shown in the chart below.
Because Liberty SiriusXM Group is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth, which averaged 13.3% over the past three years and is estimated to grow 3.90% annually over the next three to five years.
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Since investing in companies with low financial strength could result in permanent capital loss, investors must carefully review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. Liberty SiriusXM Group has a cash-to-debt ratio of 0.08, which ranks worse than 89% of the companies in the industry of Media - Diversified. Based on this, GuruFocus ranks Liberty SiriusXM Group's financial strength as 3 out of 10, suggesting poor balance sheet. This is the debt and cash of Liberty SiriusXM Group 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. Liberty SiriusXM Group has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of $8.1 billion and loss of $2.915 a share. Its operating margin is 21.91%, which ranks better than 89% of the companies in the industry of Media - Diversified. Overall, the profitability of Liberty SiriusXM Group is ranked 7 out of 10, which indicates fair profitability. This is the revenue and net income of Liberty SiriusXM Group 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 Liberty SiriusXM Group is 13.3%, which ranks better than 82% of the companies in the industry of Media - Diversified. The 3-year average EBITDA growth is -39.5%, which ranks worse than 89% of the companies in the industry of Media - Diversified.
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, Liberty SiriusXM Group's return on invested capital is 5.03, and its cost of capital is 6.81. The historical ROIC vs WACC comparison of Liberty SiriusXM Group is shown below:
In conclusion, the stock of Liberty SiriusXM Group (NAS:LSXMA, 30-year Financials) shows every sign of being modestly undervalued. The company's financial condition is poor and its profitability is fair. Its growth ranks worse than 89% of the companies in the industry of Media - Diversified. To learn more about Liberty SiriusXM Group stock, you can check out its 30-year Financials here.
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