Elastic NV (ESTC, Financial), a software company specializing in search and data analysis, has recently shown a significant daily gain of 37.13% and a three-month gain of 48.38%. Despite these impressive gains, the company reports a Loss Per Share of $2.24. This raises a critical question for investors: Is Elastic NV (ESTC) modestly undervalued? To address this, we will delve into a valuation analysis to ascertain the stock's true market value. Read on for an insightful examination of Elastic NV (ESTC)'s financials and market position.
Company Introduction
Elastic NV, headquartered in Mountain View, California, is at the forefront of enterprise search, observability, and security. Their robust search engine processes a vast array of structured and unstructured data, extracting valuable insights. With a market capitalization of $11 billion and sales reaching $1.10 billion, the company's financial dynamics are intriguing. Currently, the stock is trading at $110.2, while the Fair Value (GF Value) is estimated at $121.98, indicating a potential undervaluation. This juxtaposition sets the stage for a deeper evaluation of Elastic NV's intrinsic value.
Summarize GF Value
The GF Value is a unique valuation measure that determines the intrinsic value of a stock like Elastic NV (ESTC, Financial). It incorporates historical trading multiples, a GuruFocus adjustment factor based on the company's past performance, and future business projections. When the stock price hovers significantly above the GF Value Line, it suggests overvaluation, potentially leading to weaker future returns. Conversely, a price below the line could imply undervaluation and the prospect of higher returns. Currently, Elastic NV (ESTC) seems modestly undervalued with its stock price at $110.2, which is below the GF Value of $121.98.
Given this modest undervaluation, investors could potentially expect higher long-term returns from Elastic NV's stock relative to its business growth. For those interested in similar opportunities, consider exploring companies that may deliver higher future returns at reduced risk.
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Financial Strength
A company's financial strength is crucial in mitigating the risk of capital loss. Investors should thoroughly assess this before purchasing shares. Elastic NV's cash-to-debt ratio is 1.63, ranking in the lower half compared to its industry peers. With an overall financial strength score of 5 out of 10, Elastic NV's financial health is deemed fair. Monitoring the company's debt and cash trends over time can provide further insight into its financial resilience.
Profitability and Growth
Elastic NV's profitability, as indicated by its operating margin of -11.67%, is lower than the majority of its competitors in the software industry. Despite a substantial revenue of $1.10 billion over the past twelve months, the company's Loss Per Share stands at $2.24. This places Elastic NV's profitability rank at a modest 3 out of 10. However, the company's growth prospects appear brighter, with a 3-year average annual revenue growth rate of 27.2%, outperforming many in its sector. This growth, however, has not been fully reflected in the company's EBITDA, which is an area for potential improvement.
ROIC vs WACC
To evaluate Elastic NV's profitability from another angle, we compare the Return on Invested Capital (ROIC) against the Weighted Average Cost of Capital (WACC). Ideally, a company's ROIC should exceed its WACC, indicating efficient capital usage. Elastic NV's ROIC of -15.94 falls short of its WACC of 7.59, suggesting that the company is not generating sufficient returns on its investments. This comparison is a vital aspect of assessing the company's long-term profitability and value creation.
Conclusion
In conclusion, Elastic NV (ESTC, Financial) presents as a modestly undervalued stock. The company's fair financial condition, coupled with its poor profitability and mixed growth indicators, paints a complex picture for investors. To gain a more comprehensive understanding of Elastic NV's financial health and potential, interested parties can 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.
