AppFolio Inc (APPF, Financial) recently reported a daily gain of 12.07% and a three-month gain of 12.47%. Despite a reported Loss Per Share of 2.2, the question arises: Is the stock fairly valued? In this article, we delve into a valuation analysis of AppFolio, examining its financial performance, growth prospects, and intrinsic value. We encourage readers to follow along for an informed perspective on AppFolio's current market standing.
Introduction to AppFolio Inc (APPF, Financial)
AppFolio is a leading provider of cloud-based software solutions for small and medium-sized businesses (SMBs) in the property management and legal industries. Its end-to-end solutions cater to the diverse needs of property managers, offering a range of products from cloud-based property management software to real estate investment management tools. AppFolio's operations primarily span across the United States, generating revenue predominantly from subscription fees.
At a current stock price of $198.11 per share, AppFolio's market value is juxtaposed against its GF Value, an intrinsic value estimate based on historical trading multiples, past performance, and future business performance estimates. To better understand AppFolio's value, let's first take a look at its income breakdown:
Understanding the GF Value
The GF Value is a proprietary measure of a stock's intrinsic value, computed by GuruFocus. It takes into account historical trading multiples such as the PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow. The GF Value also incorporates a GuruFocus adjustment factor based on the company's past returns and growth, as well as future estimates of the business performance.
AppFolio's GF Value indicates that the stock is fairly valued. This assessment is based on three key factors: historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. If the share price is significantly above the GF Value Line, the stock may be overvalued and have poor future returns. Conversely, if the share price is significantly below the GF Value calculation, the stock may be undervalued and have higher future returns.
Given that AppFolio is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth.
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AppFolio's Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's crucial to review a company's financial strength before deciding to buy shares. AppFolio has a cash-to-debt ratio of 4.15, which ranks better than 56.01% of 2739 companies in the Software industry. Based on this, GuruFocus ranks AppFolio's financial strength as 8 out of 10, suggesting a strong balance sheet.
Let's examine AppFolio's debt and cash over the past years:
AppFolio's Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, generally poses less risk. AppFolio has been profitable 5 over the past 10 years. Over the past twelve months, the company had a revenue of $532.30 million and a Loss Per Share of $2.2. Its operating margin is -10.33%, which ranks worse than 67.99% of 2765 companies in the Software industry. Overall, GuruFocus ranks the profitability of AppFolio at 5 out of 10, indicating fair profitability.
Growth is a crucial factor in the valuation of a company. AppFolio's 3-year average revenue growth rate is better than 78.14% of 2397 companies in the Software industry. However, AppFolio's 3-year average EBITDA growth rate is 0%, which ranks worse than 0% of 1992 companies in the Software industry.
ROIC vs WACC
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. Ideally, the return on invested capital should be higher than the weighted cost of capital. For the past 12 months, AppFolio's return on invested capital is -47.56, and its cost of capital is 10.05.
Let's look at the historical ROIC vs WACC comparison of AppFolio:
Conclusion
In conclusion, AppFolio's stock appears to be fairly valued. The company boasts a strong financial condition and fair profitability, although its growth ranks below average in the Software industry. For more insights into AppFolio's financial performance, check out its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
