Despite a daily loss of 2.58%, DigitalBridge Group Inc (DBRG, Financial) has seen a 3-month gain of 27.78%. However, with a Loss Per Share of $1.99, investors may be wondering if the stock is indeed modestly undervalued. This article aims to answer this question through a detailed valuation analysis. Keep reading to gain valuable insights into the company's financial status and future prospects.
Company Introduction
DigitalBridge Group Inc, formerly known as Colony Capital, is a global digital infrastructure firm that rebranded after merging with its subsidiary, Digital Colony, in 2020. The merger marked the company's shift from hospitality real estate to digital infrastructure. DigitalBridge Group's services span across Investment Management, Operating, and Corporate and Other segments, with the Operating segment, which owns and leases digital assets, generating the majority of the firm's revenue. The company primarily operates in the United States.
As of September 20, 2023, DigitalBridge Group's stock is priced at $17.36, which is below its fair value (GF Value) of $23.5, indicating that the stock may be modestly undervalued.
Understanding the GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It's derived from a unique method that takes into account historical multiples (PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow), a GuruFocus adjustment factor based on the company's past returns and growth, and future business performance estimates. The GF Value Line on our summary page provides an overview of the fair value at which the stock should ideally be traded.
According to our valuation method, DigitalBridge Group's stock appears to be modestly undervalued. If the share price significantly exceeds the GF Value Line, the stock may be overvalued, leading to poor future returns. Conversely, if the share price is significantly below the GF Value Line, the stock may be undervalued, which could result in higher future returns. Given its current price of $17.36 per share, DigitalBridge Group's stock seems to be modestly undervalued. Therefore, the long-term return of its stock is likely to be higher than its business growth.
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Assessing Financial Strength
Before investing in a company's stock, it's crucial to evaluate its financial strength. Investing in companies with poor financial strength can lead to a higher risk of permanent loss. Key indicators of financial strength include the cash-to-debt ratio and interest coverage. With a cash-to-debt ratio of 0.07, DigitalBridge Group ranks lower than 77.38% of 1777 companies in the Real Estate industry. Its overall financial strength is 2 out of 10, indicating that it is relatively weak.
Evaluating Profitability and Growth
Investing in profitable companies generally carries less risk, especially if they have consistently demonstrated profitability over the long term. Companies with high profit margins typically offer better performance potential than those with low profit margins. DigitalBridge Group has been profitable for 4 years over the past 10 years, with revenues of $1.30 billion and a Loss Per Share of $1.99 in the past 12 months. However, its operating margin of -25.55% is worse than 87.24% of 1771 companies in the Real Estate industry, indicating fair profitability.
Growth is a critical factor in a company's valuation. A faster-growing company creates more value for shareholders, particularly if the growth is profitable. DigitalBridge Group's 3-year average annual revenue growth is 144.2%, ranking better than 98.09% of 1673 companies in the Real Estate industry. Its 3-year average EBITDA growth rate is 54.9%, ranking better than 91.21% of 1377 companies in the industry.
ROIC vs. WACC
Another way to evaluate a company's profitability is by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). ROIC measures how well a company generates cash flow relative to the capital it has invested in its business, while WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. If ROIC exceeds WACC, the company is likely creating value for its shareholders. Over the past 12 months, DigitalBridge Group's ROIC was -3.32 while its WACC was 7.41.
Conclusion
In conclusion, DigitalBridge Group's stock appears to be modestly undervalued. Although the company's financial condition is poor, its profitability is fair, and its growth ranks better than 91.21% of 1377 companies in the Real Estate industry. To learn more about DigitalBridge Group's stock, you can check out its 30-Year Financials here.
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