Rambus Inc (RMBS, Financial) recently experienced a daily loss of 5.92%, yet it boasts a 3-month gain of 13.26%. With an Earnings Per Share (EPS) of 2.61, investors are prompted to question whether the stock is significantly overvalued. This article aims to delve into the valuation analysis of Rambus (RMBS) and provide readers with a comprehensive understanding of its current market position.
Company Introduction
Rambus Inc is a leading semiconductor solutions provider, specializing in high-speed, high-security computer chips and Silicon intellectual property. The company's main offerings include memory interface chips, silicon IP, and architecture licenses, primarily catering to markets in the United States, Taiwan, Asia, Japan, and Singapore. A critical comparison between Rambus (RMBS, Financial)'s stock price of $64.85 and its GF Value of $43.69 suggests that the company's stock may be significantly overvalued. This juxtaposition sets the stage for a deeper evaluation of Rambus's intrinsic value.
Summarize GF Value
The GF Value is an exclusive metric used to determine the intrinsic value of a stock. It is calculated by considering historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line serves as a benchmark, suggesting the fair trading value of the stock.
According to GuruFocus' proprietary valuation method, Rambus (RMBS, Financial) is significantly overvalued. The stock's fair value is estimated using historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. The current price of $64.85 per share places Rambus at a market cap of $7 billion, well above the GF Value, indicating a potential overvaluation.
Given this significant overvaluation, the long-term return of Rambus stock may not align with its future business growth, potentially leading to lesser returns for investors.
Link: These companies may deliver higher future returns at reduced risk.Financial Strength
Investing in companies with robust financial strength is crucial to minimize the risk of permanent capital loss. Rambus's financial strength can be assessed by examining its cash-to-debt ratio and interest coverage. With a cash-to-debt ratio of 12.4, Rambus outperforms 75.55% of its peers in the Semiconductors industry. GuruFocus ranks Rambus's overall financial strength at a solid 10 out of 10.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over time, is generally less risky. Rambus has been profitable 4 out of the past 10 years, with a revenue of $461.30 million and an Earnings Per Share (EPS) of $2.61 over the past twelve months. The company's operating margin of 16.55% ranks well within its industry, indicating fair profitability as ranked by GuruFocus.
Growth is also a pivotal factor in valuation. Rambus's average annual revenue growth of 26.5% surpasses 79.59% of its industry counterparts. However, the 3-year average EBITDA growth rate stands at 0%, a concern for investors looking for growth potential.
ROIC vs. WACC
The comparison between a company's Return on Invested Capital (ROIC) and its Weighted Average Cost of Capital (WACC) is essential to evaluate profitability. Rambus's ROIC of 23.12 is notably higher than its WACC of 12.15, indicating that the company is generating value for its shareholders.
Conclusion
In summary, Rambus (RMBS, Financial) appears to be significantly overvalued based on its current market price. Despite this, the company maintains strong financial health and fair profitability. However, its growth ranking is concerning, as it falls behind a majority of companies in the Semiconductors industry. To gain a deeper insight into Rambus's financials, interested parties can explore the company's 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.
