Yahoo Finance Altisource Asset Management Stock Is Believed To Be Modestly Overvalued
- By GF Value
The stock of Altisource Asset Management (AMEX:AAMC, 30-year Financials) shows every sign of being modestly overvalued, 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 $20.275 per share and the market cap of $41.5 million, Altisource Asset Management stock appears to be modestly overvalued. GF Value for Altisource Asset Management is shown in the chart below.
Because Altisource Asset Management is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth.
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Since investing in companies with low financial strength could result in permanent capital loss, investors must carefully review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. Altisource Asset Management has a cash-to-debt ratio of 131.82, which ranks in the middle range of the companies in Asset Management industry. Based on this, GuruFocus ranks Altisource Asset Management's financial strength as 5 out of 10, suggesting fair balance sheet. This is the debt and cash of Altisource Asset Management over the past years:
It poses less risk to invest in profitable companies, especially those that have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. Altisource Asset Management has been profitable 2 over the past 10 years. Over the past twelve months, the company had a revenue of $8.2 million and earnings of $20.39 a share. Its operating margin is -196.00%, which ranks worse than 88% of the companies in Asset Management industry. Overall, GuruFocus ranks the profitability of Altisource Asset Management at 2 out of 10, which indicates poor profitability. This is the revenue and net income of Altisource Asset Management 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 Altisource Asset Management is -100%, which ranks in the bottom 10% of the companies in Asset Management industry. The 3-year average EBITDA growth rate is -40%, which ranks worse than 85% of the companies in Asset Management industry.
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average cost of capital. 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. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Altisource Asset Management's return on invested capital is -128.94, and its cost of capital is 8.80. The historical ROIC vs WACC comparison of Altisource Asset Management is shown below:
In summary, Altisource Asset Management (AMEX:AAMC, 30-year Financials) stock gives every indication of being modestly overvalued. The company's financial condition is fair and its profitability is poor. Its growth ranks worse than 85% of the companies in Asset Management industry. To learn more about Altisource Asset Management stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.
