EHang Holdings Ltd (EH, Financial) has seen a daily gain of 3.83%, and a 3-month gain of 19.31%. However, with a Loss Per Share of 0.85, is the stock significantly overvalued? In this article, we delve into this question by analyzing the company's valuation. Read on to explore our findings.
Company Introduction
EHang Holdings Ltd is a leading autonomous aerial vehicle (AAV) technology platform company. It is committed to making safe, autonomous, and eco-friendly air mobility accessible to everyone. EHang Holdings provides customers across various industries with AAV products and commercial solutions in air mobility, smart city management, and aerial media solutions. As a pioneer in cutting-edge AAV technologies and commercial solutions in the global Urban Air Mobility industry, it continues to push the boundaries of the sky to make flying technologies benefit life in smart cities.
At its current price of $18.71 per share, EHang Holdings has a market cap of $1.10 billion. The stock appears to be significantly overvalued when compared to our estimated fair value (GF Value) of $8.37.
Understanding the GF Value
The GF Value represents the current intrinsic value of a stock derived from our exclusive method. It is calculated based on three factors:
- Historical multiples (PE Ratio, PS Ratio, PB Ratio and Price-to-Free-Cash-Flow) that the stock has traded at.
- GuruFocus adjustment factor based on the company's past returns and growth.
- Future estimates of the business performance.
Our GF Value Line provides an overview of the fair value that the stock should ideally be traded at. 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.
For EHang Holdings, the stock appears to be significantly overvalued based on our GF Value calculation. This suggests that the long-term return of its stock is likely to be much lower than its future business growth.
Financial Strength
Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Hence, it is crucial 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.
EHang Holdings has a cash-to-debt ratio of 0.9, which is better than 53.74% of 294 companies in the Aerospace & Defense industry. GuruFocus ranks the overall financial strength of EHang Holdings at 5 out of 10, indicating that its financial strength is fair.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is generally less risky. 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 96.95% of 295 companies in the Aerospace & Defense industry. Overall, the profitability of EHang Holdings is ranked 1 out of 10, indicating poor profitability.
Growth is probably the most important factor in the valuation 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 EHang Holdings is -42%, which ranks worse than 98.11% of 265 companies in the Aerospace & Defense industry. The 3-year average EBITDA growth rate is -58.9%, which ranks worse than 93.1% of 232 companies in the Aerospace & Defense industry.
ROIC vs WACC
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. 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 exceeds the WACC, the company is likely creating value for its shareholders. During the past 12 months, EHang Holdings's ROIC is -131.03 while its WACC came in at 11.53.
Conclusion
In summary, the stock of EHang Holdings Ltd (EH, Financial) appears to be significantly overvalued. The company's financial condition is fair and its profitability is poor. Its growth ranks worse than 93.1% of 232 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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