The stock of Ubisoft Entertainment (OTCPK:UBSFY,) is estimated to be modestly undervalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $15.42 per share and the market cap of $9.5 billion, Ubisoft Entertainment stock is estimated to be modestly undervalued. GF Value for Ubisoft Entertainment is shown in the chart below.
Because Ubisoft Entertainment is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth, which averaged 4.5% over the past three years and is estimated to grow 10.16% annually over the next three to five years.
Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. Ubisoft Entertainment has a cash-to-debt ratio of 0.75, which which ranks worse than 82% of the companies in Interactive Media industry. The overall financial strength of Ubisoft Entertainment is 5 out of 10, which indicates that the financial strength of Ubisoft Entertainment is fair. This is the debt and cash of Ubisoft Entertainment over the past years:
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Ubisoft Entertainment has been profitable 7 over the past 10 years. Over the past twelve months, the company had a revenue of $1.9 billion and loss of $0.21 a share. Its operating margin is 4.85%, which ranks in the middle range of the companies in Interactive Media industry. Overall, the profitability of Ubisoft Entertainment is ranked 6 out of 10, which indicates fair profitability. This is the revenue and net income of Ubisoft Entertainment over the past years:
Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term stock performance of a company. A faster growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Ubisoft Entertainment is 4.5%, which ranks in the middle range of the companies in Interactive Media industry. The 3-year average EBITDA growth rate is -3.3%, which ranks worse than 74% of the companies in Interactive Media industry.
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (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. If the return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, Ubisoft Entertainment's ROIC is 6.80 while its WACC came in at 1.06. The historical ROIC vs WACC comparison of Ubisoft Entertainment is shown below:
In conclusion, the stock of Ubisoft Entertainment (OTCPK:UBSFY) gives every indication of being modestly undervalued. The company's financial condition is fair and its profitability is fair. Its growth ranks worse than 74% of the companies in Interactive Media industry.