Sea Ltd (SE, Financial) has recently experienced a notable decline, with a staggering 22.07% drop in its daily share price and a significant 36.96% loss over the past three months. This downturn prompts investors to question whether the company is now significantly undervalued. The current Earnings Per Share (EPS) stand at $0.4, suggesting potential for an investment opportunity. The following analysis aims to delve into Sea's valuation, presenting an in-depth look at whether the current market price truly reflects the company's intrinsic value.
Company Introduction
Sea operates Southeast Asia's largest e-commerce platform, Shopee, leading in gross merchandise value and transaction numbers. Originating as a gaming enterprise, Garena, Sea expanded into e-commerce in 2015, which now spearheads its growth. Shopee thrives as a hybrid C2C and B2C marketplace across eight core markets, with Indonesia being a significant contributor to its GMV. The gaming segment continues to prosper, with Free Fire being the most downloaded game in early 2022. Additionally, Sea's fintech arm, SeaMoney, focuses on credit lending services.
Comparing Sea's stock price of $35.87 to its Fair Value (GF Value) of $175.22, it becomes evident that the stock may be significantly undervalued. This discrepancy sets the stage for a comprehensive valuation analysis, intertwining financial metrics with Sea's corporate narrative.
Summarize GF Value
The GF Value is a unique metric that calculates the intrinsic value of a stock based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. When a stock's price aligns with the GF Value Line, it is considered fairly valued. However, a significant deviation above suggests overvaluation, while below indicates potential undervaluation.
Sea (SE, Financial) is currently positioned as significantly undervalued by GuruFocus' valuation method. With a market cap of $20.40 billion and a share price well below the GF Value Line, the long-term return on Sea's stock is anticipated to surpass its business growth, signaling an attractive investment opportunity for value investors.
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Financial Strength
Investing in companies with solid financial strength mitigates the risk of capital loss. Sea's cash-to-debt ratio of 1.25 is commendable, surpassing 68.38% of its peers in the Retail - Cyclical industry. With a financial strength rating of 7 out of 10, Sea's fiscal health appears stable and robust.
Profitability and Growth
Profitable companies typically present less risk, especially those with a history of consistent profitability. Sea's operating margin of 4.33% outperforms 55.29% of competitors within the Retail - Cyclical industry, despite its profitability being ranked as poor due to a lack of consistent profit over the past decade. However, Sea's impressive revenue growth rate, outshining 96.95% of industry counterparts, suggests a strong growth trajectory.
Moreover, Sea's EBITDA growth rate of 12.5% is better than 60.63% of industry players, indicating a healthy expansion pace. This growth is a pivotal factor in valuation, as it is often correlated with the long-term stock performance.
ROIC vs. WACC
Evaluating a company's profitability involves comparing its Return on Invested Capital (ROIC) with its Weighted Average Cost of Capital (WACC). A higher ROIC than WACC suggests value creation for shareholders. Sea's ROIC over the past year was 5.15, while its WACC stood at 12.92, indicating challenges in generating cash flow relative to the capital invested.
Conclusion
In conclusion, Sea (SE, Financial) appears significantly undervalued, offering a fair financial condition and promising growth prospects, despite its profitability concerns. For a more detailed financial overview of Sea, 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.
