The stock of AAC Clyde Space AB (OTCPK:ACCMF, 30-year Financials) is believed 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 $0.325 per share and the market cap of $57 million, AAC Clyde Space AB stock is believed to be possible value trap. GF Value for AAC Clyde Space AB is shown in the chart below.
The reason we think that AAC Clyde Space AB stock might be a value trap is because
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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. AAC Clyde Space AB has a cash-to-debt ratio of 4.06, which ranks better than 67% of the companies in Hardware industry. Based on this, GuruFocus ranks AAC Clyde Space AB’s financial strength as 6 out of 10, suggesting fair balance sheet. This is the debt and cash of AAC Clyde Space AB 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. AAC Clyde Space AB has been profitable 0 over the past 10 years. Over the past twelve months, the company had a revenue of $12.8 million and loss of $0.034 a share. Its operating margin is -19.98%, which ranks worse than 89% of the companies in Hardware industry. Overall, the profitability of AAC Clyde Space AB is ranked 1 out of 10, which indicates poor profitability. This is the revenue and net income of AAC Clyde Space AB over the past years:
Growth is probably one of the most important factors 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. If a company’s business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. AAC Clyde Space AB’s 3-year average revenue growth rate is better than 97% of the companies in Hardware industry. AAC Clyde Space AB’s 3-year average EBITDA growth rate is 24%, which ranks better than 77% of the companies in Hardware 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, AAC Clyde Space AB’s ROIC is -4.17 while its WACC came in at 6.34. The historical ROIC vs WACC comparison of AAC Clyde Space AB is shown below:
In closing, the stock of AAC Clyde Space AB (OTCPK:ACCMF, 30-year Financials) appears to be possible value trap. The company's financial condition is fair and its profitability is poor. Its growth ranks better than 77% of the companies in Hardware industry. To learn more about AAC Clyde Space AB stock, you can check out its 30-year Financials here.
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