Extreme Networks Inc (EXTR, Financial) has witnessed a daily loss of 6.82% and a 3-month loss of 13.71%. Its Earnings Per Share (EPS) stands at 0.58. Despite these figures, the question arises: is the stock significantly overvalued? In this analysis, we delve into the valuation of Extreme Networks to provide investors with a comprehensive understanding of its market value.
Company Overview
Extreme Networks Inc provides software-driven networking services for enterprise customers. Its products include wired and wireless network infrastructure equipment and software for network management, policy, analytics, and access controls. The company's current stock price is $22.61, while its GF Value, an estimation of fair value, stands at $15.22. This discrepancy suggests that Extreme Networks may be significantly overvalued.
Understanding the GF Value
The GF Value is a proprietary measure of a stock's intrinsic value. It is calculated based on historical multiples, a GuruFocus adjustment factor based on past returns and growth, and future business performance estimates. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
Given the current price of $22.61 per share, Extreme Networks (EXTR, Financial), with a market cap of $2.90 billion, is believed to be significantly overvalued. As a result, the long-term return of its stock is likely to be much lower than its future business growth.
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Financial Strength
Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid this, it's crucial to understand a company's financial strength before deciding to purchase shares. Extreme Networks has a cash-to-debt ratio of 0.89, which ranks worse than 58.41% of 2361 companies in the Hardware industry. The overall financial strength of Extreme Networks is 6 out of 10, indicating fair financial health.
Profitability and Growth
Companies that have been consistently profitable over the long term offer less risk for investors. Extreme Networks has been profitable 3 over the past 10 years. Its operating margin is 8.5%, which ranks better than 70.87% of 2444 companies in the Hardware industry. However, the overall profitability of Extreme Networks is ranked 4 out of 10, indicating poor profitability.
Growth is a crucial factor in the valuation of a company. Extreme Networks's 3-year average revenue growth rate is better than 59.2% of 2326 companies in the Hardware industry. However, its 3-year average EBITDA growth rate is 0%, which ranks worse than 0% of 1956 companies in the Hardware industry.
ROIC vs WACC
Comparing a company's return on invested capital and the weighted cost of capital provides another perspective on profitability. For the past 12 months, Extreme Networks's return on invested capital (ROIC) is 9.9, and its cost of capital is 16.99.
Conclusion
In summary, the stock of Extreme Networks is believed to be significantly overvalued. The company's financial condition is fair, but its profitability is poor. Its growth ranks worse than 0% of 1956 companies in the Hardware industry. To learn more about Extreme Networks stock, you can check out its 30-Year Financials here.
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