Gen Digital Inc (GEN, Financial) recently saw a daily gain of 3.48%, and a significant 3-month gain of 21.7%. With an Earnings Per Share (EPS) of 2.08, the question arises: is this stock modestly undervalued? This article aims to provide a comprehensive valuation analysis of Gen Digital, encouraging readers to delve into the subsequent analysis.
An Introduction to Gen Digital Inc
Gen Digital Inc is a leading cybersecurity firm that offers security, identity protection, and privacy solutions to individual consumers. Brands such as Norton, Avast, and LifeLock under Gen Digital's umbrella have long maintained their positions as some of the most recognizable consumer-focused security and identity-protection products. With a market cap of $13.30 billion and sales of $3.60 billion, Gen Digital's stock price currently stands at $20.8, while its GF Value is estimated at $29.48, suggesting a potential undervaluation.
Understanding the GF Value of Gen Digital
The GF Value represents the current intrinsic value of a stock derived from our unique methodology. It is calculated based on historical multiples that the stock has traded at, a GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of the business performance. This GF Value Line provides an overview of the fair value at which the stock should ideally be traded.
According to our valuation method, Gen Digital (GEN, Financial) appears to be modestly undervalued. If the share price is significantly above the GF Value Line, the stock may be overvalued and have poor future returns. Conversely, if the share price is significantly below the GF Value Line, the stock may be undervalued and have higher future returns. Given its current price of $20.8 per share, Gen Digital stock is estimated to be modestly undervalued.
Since Gen Digital is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth.
Assessing the Financial Strength of Gen Digital
Investing in companies with poor financial strength carries a higher risk of permanent loss of capital. Thus, it's crucial to review a company's financial strength before deciding to buy its stock. Looking at the cash-to-debt ratio and interest coverage can provide a great starting point for understanding a company's financial strength. Gen Digital has a cash-to-debt ratio of 0.07, ranking it lower than 93.84% of companies in the Software industry. GuruFocus ranks the overall financial strength of Gen Digital at 3 out of 10, indicating that its financial strength is poor.
Profitability and Growth of Gen Digital
Investing in profitable companies, especially those that have demonstrated consistent profitability over the long term, poses less risk. Gen Digital has been profitable 9 times over the past 10 years. With a revenue of $3.60 billion and an Earnings Per Share (EPS) of $2.08 over the past twelve months, its operating margin is 39.47%, ranking better than 97.61% of companies in the Software industry. Overall, GuruFocus ranks the profitability of Gen Digital at 7 out of 10, indicating fair profitability.
Growth is probably one of the most important factors in the valuation of a company. Gen Digital's 3-year average revenue growth rate is better than 58.32% of companies in the Software industry. However, Gen Digital's 3-year average EBITDA growth rate is 4.7%, ranking worse than 58.57% of companies in the Software industry.
ROIC vs WACC
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, Gen Digital's ROIC was 16.54, while its WACC came in at 7.51.
Conclusion
Overall, the stock of Gen Digital (GEN, Financial) is estimated to be modestly undervalued. The company's financial condition is poor, its profitability is fair, and its growth ranks worse than 58.57% of companies in the Software industry. To learn more about Gen Digital stock, you can check out its 30-Year Financials here.
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