Light & Wonder Inc (LNW, Financial) has recently shown a notable daily gain of 11.21%, complemented by a three-month gain of 17.59%. With an Earnings Per Share (EPS) of $3.96, investors are keen to understand whether the stock is modestly overvalued. This valuation analysis aims to provide clarity on Light & Wonder's market positioning and future prospects. Read on to delve into the nuances of Light & Wonder's true valuation.
Company Introduction
Light & Wonder Inc (LNW, Financial) is a major player in the electronic gaming machine industry, rivalling giants like International Game Technology and Aristocrat Leisure. With a diversified portfolio that includes manufacturing gaming machines for various establishments and a significant presence in the social casino niche through its subsidiary, SciPlay, Light & Wonder is a company with a global footprint. The question arises: how does its current stock price of $86.82 compare to its intrinsic value? This article will dissect the company's financials and market performance to assess its true worth.
Summarizing GF Value
The GF Value is a unique metric that estimates the intrinsic value of a stock. It takes into account historical trading multiples, a GuruFocus adjustment factor based on past company performance, and projected future business outcomes. When a stock's price significantly exceeds the GF Value Line, it suggests an overvaluation, potentially leading to subpar future returns. Conversely, a price well below the GF Value Line may indicate a stock with higher potential returns. Currently, Light & Wonder's market cap of $7.80 billion suggests a modest overvaluation at its price of $86.82 per share.
Given Light & Wonder's relative overvaluation, the long-term return of its stock may not align with the company's business growth, warranting a closer look by investors.
Assessing Financial Strength
Before investing, evaluating a company's financial strength is crucial. Light & Wonder's cash-to-debt ratio of 0.23 places it lower than 65.89% of its peers in the Travel & Leisure industry, suggesting a higher risk of financial distress. This is reflected in its financial strength rating of 4 out of 10, indicating a need for potential investors to exercise caution.
Profitability and Growth
Investing in companies with a track record of profitability, particularly those with consistent performance, is generally less risky. Light & Wonder has shown profitability over the past decade, with a robust operating margin of 20.15%, outperforming 81.61% of competitors in its sector. Despite this, its growth metrics reveal challenges, with a 3-year average annual revenue growth of 1% and a 3-year average EBITDA growth rate of -8.8%, lagging behind many in the industry.
ROIC vs. WACC
The comparison between a company's Return on Invested Capital (ROIC) and its Weighted Average Cost of Capital (WACC) is a vital indicator of profitability. Ideally, the ROIC should exceed the WACC, indicating efficient capital utilization. Light & Wonder's ROIC of 10.21 is marginally below its WACC of 10.76, which may signal concerns about the company's ability to generate value over its capital costs.
Conclusion
In conclusion, Light & Wonder (LNW, Financial) appears to be modestly overvalued. The company's financial condition raises some red flags, and while its profitability is stable, its growth prospects are not as promising as some of its industry counterparts. To gain a deeper understanding of Light & Wonder's financial health, investors are encouraged to review 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.
