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CalAmp Stock Is Believed To Be Modestly Overvalued

- By GF Value

The stock of CalAmp (NAS:CAMP, 30-year Financials) is believed to be 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 $14.26 per share and the market cap of $502.6 million, CalAmp stock is estimated to be modestly overvalued. GF Value for CalAmp is shown in the chart below.


CalAmp Stock Is Believed To Be Modestly Overvalued
CalAmp Stock Is Believed To Be Modestly Overvalued

Because CalAmp is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth, which is estimated to grow 0.08% annually over the next three to five years.

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Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Thus, it is important to carefully review the financial strength of a company before deciding whether to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company. CalAmp has a cash-to-debt ratio of 0.45, which is worse than 78% of the companies in Hardware industry. GuruFocus ranks the overall financial strength of CalAmp at 3 out of 10, which indicates that the financial strength of CalAmp is poor. This is the debt and cash of CalAmp over the past years:

CalAmp Stock Is Believed To Be Modestly Overvalued
CalAmp Stock Is Believed To Be Modestly Overvalued

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. CalAmp has been profitable 7 over the past 10 years. Over the past twelve months, the company had a revenue of $308.6 million and loss of $1.63 a share. Its operating margin is -1.12%, which ranks worse than 72% of the companies in Hardware industry. Overall, GuruFocus ranks the profitability of CalAmp at 6 out of 10, which indicates fair profitability. This is the revenue and net income of CalAmp over the past years:

CalAmp Stock Is Believed To Be Modestly Overvalued
CalAmp Stock Is Believed To Be Modestly Overvalued

Growth is probably one of the most important factors in the valuation of a company. GuruFocus' research has found that growth is closely correlated with the long-term performance of a company's stock. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. CalAmp's 3-year average revenue growth rate is in the middle range of the companies in Hardware industry. CalAmp's 3-year average EBITDA growth rate is -34.1%, which ranks in the bottom 10% of the companies in Hardware industry.

Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted 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 ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, CalAmp's ROIC was -1.11, while its WACC came in at 14.94. The historical ROIC vs WACC comparison of CalAmp is shown below:

CalAmp Stock Is Believed To Be Modestly Overvalued
CalAmp Stock Is Believed To Be Modestly Overvalued

In summary, CalAmp (NAS:CAMP, 30-year Financials) stock is estimated to be modestly overvalued. The company's financial condition is poor and its profitability is fair. Its growth ranks in the bottom 10% of the companies in Hardware industry. To learn more about CalAmp stock, you can check out its 30-year Financials here.

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This article first appeared on GuruFocus.