Adeia Inc (ADEA, Financial) has recently seen a daily gain of 2.63%, despite a 3-month loss of 4.65%. With a Loss Per Share of 2.8, questions arise over whether the stock is significantly overvalued. This article aims to explore this query through a detailed valuation analysis. Read on to gain insight into the financial standing and market value of Adeia (ADEA).
Understanding Adeia Inc (ADEA, Financial)
Adeia Inc is a consumer and entertainment product licensing company, operating primarily in the Intellectual Property Licensing (IP) segment. The company licenses its innovations to leading entities in the broader entertainment industry, and those developing new technologies that drive this industry forward. This includes Pay-TV, Consumer Electronics, Connected Car, and Media Platform.
Currently, Adeia's stock price stands at $10.16, while the GF Value, an estimate of fair value, is $4.1. This disparity prompts a deeper exploration into the company's value. Here is the income breakdown of Adeia:
Deciphering the GF Value
The GF Value represents a stock's current intrinsic value, derived from our exclusive method. It provides an overview of the fair value that the stock should ideally trade at, based on three factors: historical multiples (PE Ratio, PS Ratio, PB Ratio and Price-to-Free-Cash-Flow) that the stock has traded at, GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of business performance.
Adeia (ADEA, Financial) stock appears to be significantly overvalued based on the GuruFocus Value calculation. 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. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $10.16 per share, Adeia has a market cap of $1.10 billion, indicating that the stock is significantly overvalued.
Due to Adeia's overvaluation, the long-term return of its stock is likely to be much lower than its future business growth.
Financial Strength
Investing in companies with poor financial strength carries a higher risk of permanent loss of capital. Therefore, it's crucial to review a company's financial strength before deciding to buy its stock. Adeia's cash-to-debt ratio stands at 0.13, faring worse than 90.29% of 2750 companies in the Software industry. GuruFocus ranks Adeia's overall financial strength at 4 out of 10, indicating that the company's financial strength is poor.
Here is the debt and cash trend of Adeia over the past years:
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, poses less risk. Adeia has been profitable 4 times over the past 10 years. In the past twelve months, the company had a revenue of $148 million and a Loss Per Share of $2.8. Its operating margin is 105.87%, ranking better than 99.53% of 2786 companies in the Software industry. Overall, GuruFocus ranks Adeia's profitability at 5 out of 10, indicating fair profitability.
Growth is a crucial factor in a company's valuation. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. Adeia's 3-year average annual revenue growth rate is -10.6%, ranking worse than 83.96% of 2412 companies in the Software industry. However, its 3-year average EBITDA growth rate is 45.3%, ranking better than 87.39% of 2006 companies in the Software industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted cost of capital (WACC) is another way to evaluate its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Adeia's ROIC was 18.02, while its WACC came in at 11.41.
The historical ROIC vs WACC comparison of Adeia is shown below:
Conclusion
Overall, Adeia (ADEA, Financial) stock appears to be significantly overvalued. The company's financial condition is poor, and its profitability is fair. However, its growth ranks better than 87.39% of 2006 companies in the Software industry. To learn more about Adeia stock, you can check out its 30-Year Financials here.
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