EHang Holdings Ltd (EH, Financial) recently experienced a daily loss of 3.41%, though it has seen a 3-month gain of 30.63%. Despite this, the company reported a Loss Per Share of $0.85. This raises the question: Is the stock significantly overvalued? This article will explore the company's valuation analysis, providing a deeper understanding of EHang Holdings' intrinsic value.
A Glimpse into EHang Holdings
EHang Holdings Ltd is a pioneering autonomous aerial vehicle (AAV) technology platform company, focusing on making safe, autonomous, and eco-friendly air mobility accessible to everyone. EHang provides customers in various industries with AAV products and commercial solutions: air mobility (including passenger transportation and logistics), smart city management, and aerial media solutions. As the forerunner of cutting-edge AAV technologies and commercial solutions in the global Urban Air Mobility industry, it continues to explore the boundaries of the sky to make flying technologies benefit life in smart cities. The company's current stock price stands at $16.97, while its GF Value, an estimation of fair value, is $8.39.
Understanding the GF Value
The GF Value is a proprietary measure of a stock's intrinsic value, computed considering historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line denotes the stock's ideal fair trading value. If the stock price 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.
As per the GF Value, EHang Holdings (EH, Financial) appears to be significantly overvalued. The stock's fair value is estimated based on historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. Because EHang Holdings is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth.
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EHang Holdings' Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, investors must carefully review a company's financial strength before deciding whether to buy shares. EHang Holdings has a cash-to-debt ratio of 0.9, which ranks better than 53.61% of 291 companies in the Aerospace & Defense industry. Based on this, GuruFocus ranks EHang Holdings's financial strength as 5 out of 10, suggesting a fair balance sheet.
Profitability and Growth of EHang Holdings
It is less risky to invest in profitable companies, especially those with consistent profitability over the long term. A company with high profit margins is usually a safer investment than those with low profit margins. EHang Holdings has been profitable 0 over the past 10 years. Over the past twelve months, the company had a revenue of $8 million and Loss Per Share of $0.85. Its operating margin is -562.41%, which ranks worse than 96.92% of 292 companies in the Aerospace & Defense industry. Overall, the profitability of EHang Holdings is ranked 1 out of 10, which indicates poor profitability.
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of EHang Holdings is -42%, which ranks worse than 98.1% of 263 companies in the Aerospace & Defense industry. The 3-year average EBITDA growth is -58.9%, which ranks worse than 93.04% of 230 companies in the Aerospace & Defense industry.
Return on Invested Capital Vs. Weighted Average Cost of Capital
Another way to evaluate the profitability of a company is to compare its return on invested capital and the weighted 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. For the past 12 months, EHang Holdings's return on invested capital is -131.03, and its cost of capital is 11.39.
Concluding Remarks
Overall, EHang Holdings (EH, Financial) stock appears to be significantly overvalued. The company's financial condition is fair, and its profitability is poor. Its growth ranks worse than 93.04% of 230 companies in the Aerospace & Defense industry. To learn more about EHang Holdings stock, you can check out its 30-Year Financials here.
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