The stock of Naspers (OTCPK:NPSNY, 30-year Financials) is estimated to be significantly 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 $38.63 per share and the market cap of $78.1 billion, Naspers stock appears to be significantly undervalued. GF Value for Naspers is shown in the chart below.
Because Naspers is significantly undervalued, the long-term return of its stock is likely to be much higher than its business growth, which averaged 36.5% 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. Naspers has a cash-to-debt ratio of 0.74, which ranks worse than 85% of the companies in Interactive Media industry. Based on this, GuruFocus ranks Naspers’s financial strength as 4 out of 10, suggesting poor balance sheet. This is the debt and cash of Naspers over the past years:
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Naspers has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $5.9 billion and earnings of $2.408 a share. Its operating margin is -17.88%, which ranks worse than 75% of the companies in Interactive Media industry. Overall, the profitability of Naspers is ranked 5 out of 10, which indicates fair profitability. This is the revenue and net income of Naspers 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 Naspers is 36.5%, which ranks better than 83% of the companies in Interactive Media industry. The 3-year average EBITDA growth rate is -4.9%, which ranks worse than 75% of the companies in Interactive Media 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, Naspers’s return on invested capital is -2.77, and its cost of capital is 12.82. The historical ROIC vs WACC comparison of Naspers is shown below:
Overall, the stock of Naspers (OTCPK:NPSNY, 30-year Financials) is believed to be significantly undervalued. The company's financial condition is poor and its profitability is fair. Its growth ranks worse than 75% of the companies in Interactive Media industry. To learn more about Naspers stock, you can check out its 30-year Financials here.
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