Long-established in the Software industry, Adeia Inc (ADEA, Financial) has enjoyed a stellar reputation. However, it has recently witnessed a daily loss of 13.05%, juxtaposed with a three-month change of -12.84%. Fresh insights from the GF Score hint at potential headwinds. Notably, its diminished rankings in financial strength, growth, and valuation suggest that the company might not live up to its historical performance. Join us as we dive deep into these pivotal metrics to unravel the evolving narrative of Adeia Inc.
Understanding the GF Score
The GF Score is a stock performance ranking system developed by GuruFocus using five aspects of valuation, which has been found to be closely correlated to the long-term performances of stocks by backtesting from 2006 to 2021. The stocks with a higher GF Score generally generate higher returns than those with a lower GF Score. Therefore, when picking stocks, investors should invest in companies with high GF Scores. The GF Score ranges from 0 to 100, with 100 as the highest rank.
- Financial strength rank: 4/10
- Profitability rank: 5/10
- Growth rank: 4/10
- GF Value rank: 1/10
- Momentum rank: 9/10
Based on the above method, GuruFocus assigned Adeia Inc the GF Score of 62 out of 100, which signals poor future outperformance potential.
Company Snapshot: Adeia Inc
Adeia Inc is a consumer and entertainment product/solutions licensing company. Its only operating segment being Intellectual Property Licensing (IP). In the IP segment, it primarily licenses innovations to leading companies in the broader entertainment industry, and those developing new technologies that will help drive this industry forward. It includes Pay-TV, Consumer Electronics, Connected Car, and Media Platform. With a market cap of $996.02 million and sales of $148.02 million, the company has an operating margin of 105.87%.
Financial Strength Analysis
Adeia Inc's financial strength indicators present some concerning insights about the company's balance sheet health. The company's interest coverage ratio of 2.66 positions it worse than 88.23% of 1580 companies in the Software industry. This ratio highlights potential challenges the company might face when handling its interest expenses on outstanding debt. The company's Altman Z-Score is just 1.44, which is below the distress zone of 1.81. This suggests that the company may face financial distress over the next few years. Additionally, the company's low cash-to-debt ratio at 0.13 indicates a struggle in handling existing debt levels.
Profitability Analysis
Adeia Inc's low Profitability rank can also raise warning signals. The company's Gross Margin has also declined over the past five years, as evidenced by the data: 2018: 96.73; 2019: 96.98; 2020: 157.71; 2021: 191.95; 2022: 0. This trend underscores the company's struggles to convert its revenue into profits. With a Piotroski F-Score of 2, Adeia Inc's financial health appears concerning. This score, rooted in Joseph Piotroski's nine-point scale, evaluates a firm's profitability, liquidity, and operating efficiency. Given its rating, Adeia Inc might be facing challenges in these areas.
Growth Prospects
A lack of significant growth is another area where Adeia Inc seems to falter, as evidenced by the company's low Growth rank. The company's revenue has declined by -10.6 per year over the past three years, which underperforms worse than 84.15% of 2397 companies in the Software industry. Stagnating revenues may pose concerns in a fast-evolving market. Lastly, Adeia Inc predictability rank is just one star out of five, adding to investor uncertainty regarding revenue and earnings consistency.
Conclusion
Given Adeia Inc's financial strength, profitability, and growth metrics, the GF Score highlights the firm's unparalleled position for potential underperformance. While the company has a rich history in the Software industry, its recent performance and future prospects paint a different picture. Investors should tread carefully and consider these factors when making investment decisions. GuruFocus Premium members can find more companies with strong GF Scores using the following screener link: GF Score Screen.
