With a daily loss of -10.07%, a 3-month loss of -11.1%, and a Loss Per Share of 2.8, the question arises: is Adeia Inc (ADEA, Financial)'s stock significantly overvalued? This article aims to provide an in-depth analysis of Adeia's valuation, encouraging readers to delve into the following comprehensive evaluation.
Company Introduction
Adeia Inc is a consumer and entertainment product/solutions licensing company, primarily licensing innovations to leading companies in the broader entertainment industry. Its only operating segment being Intellectual Property Licensing (IP), it includes Pay-TV, Consumer Electronics, Connected Car, and Media Platform. Comparing the stock price with the GF Value, an estimation of fair value, paves the way for a more profound exploration of the company's value, ingeniously integrating financial assessment with essential company details.
Summarizing GF Value
The GF Value represents the current intrinsic value of a stock derived from our exclusive method. The GF Value Line on our summary page gives an overview of the fair value that the stock should be traded at. It is calculated 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 the business performance.
Adeia (ADEA, Financial) stock appears to be significantly overvalued based on the GuruFocus Value calculation. At its current price of $9.65 per share, Adeia has a market cap of $1 billion and the stock appears to be significantly overvalued. Because Adeia is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth.
Link: These companies may deliver higher future returns at reduced risk.
Financial Strength
Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Thus, it is important to carefully review the financial strength of a company before deciding whether to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company. Adeia has a cash-to-debt ratio of 0.13, which is worse than 90.63% of 2721 companies in the Software industry. GuruFocus ranks the overall financial strength of Adeia at 4 out of 10, which indicates that the financial strength of Adeia is poor.
Profitability and Growth
It poses less risk to invest in profitable companies, especially those that have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. Adeia has been profitable 4 over the past 10 years. Over the past twelve months, the company had a revenue of $148 million and Loss Per Share of $2.8. Its operating margin is 105.87%, which ranks better than 99.53% of 2756 companies in the Software industry. Overall, GuruFocus ranks the profitability of Adeia at 5 out of 10, which indicates fair profitability.
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 Adeia is -10.6%, which ranks worse than 84.15% of 2397 companies in the Software industry. The 3-year average EBITDA growth rate is 45.3%, which ranks better than 87.22% of 1988 companies in the Software industry.
ROIC vs WACC
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, Adeia's return on invested capital is 18.02, and its cost of capital is 11.72.
Conclusion
In summary, the stock of Adeia (ADEA, Financial) appears to be significantly overvalued. The company's financial condition is poor and its profitability is fair. Its growth ranks better than 87.22% of 1988 companies in the Software industry. To learn more about Adeia stock, you can check out its 30-Year Financials here.
To find out the high quality companies that may deliver above average returns, please check out GuruFocus High Quality Low Capex Screener.
