The stock of PagSeguro Digital (NYSE:PAGS, 30-year Financials) gives every indication of being fairly valued, 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 $51.67 per share and the market cap of $17 billion, PagSeguro Digital stock is estimated to be fairly valued. GF Value for PagSeguro Digital is shown in the chart below.
Because PagSeguro Digital is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which averaged 10.6% over the past 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. PagSeguro Digital has a cash-to-debt ratio of 10000.00, which ranks better than 100% of the companies in Software industry. Based on this, GuruFocus ranks PagSeguro Digital's financial strength as 7 out of 10, suggesting fair balance sheet. This is the debt and cash of PagSeguro Digital 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. PagSeguro Digital has been profitable 7 over the past 10 years. Over the past twelve months, the company had a revenue of $921.7 million and earnings of $0.688 a share. Its operating margin is -13.68%, which ranks worse than 73% of the companies in Software industry. Overall, the profitability of PagSeguro Digital is ranked 5 out of 10, which indicates fair profitability. This is the revenue and net income of PagSeguro Digital 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 performance of a company's stock. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of PagSeguro Digital is 10.6%, which ranks in the middle range of the companies in Software industry. The 3-year average EBITDA growth rate is 11.1%, which ranks in the middle range of the companies in Software industry.
Another way to look at the profitability of a company is to compare its return on invested capital and the weighted 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. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, PagSeguro Digital's return on invested capital is -6.11, and its cost of capital is 11.95. The historical ROIC vs WACC comparison of PagSeguro Digital is shown below:
In closing, the stock of PagSeguro Digital (NYSE:PAGS, 30-year Financials) is believed to be fairly valued. The company's financial condition is fair and its profitability is fair. Its growth ranks in the middle range of the companies in Software industry. To learn more about PagSeguro Digital stock, you can check out its 30-year Financials here.
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