NetScout Systems Inc (NTCT, Financial) has recently experienced a significant drop in its stock price, with a daily loss of 19.19% and a 3-month loss of 27.65%. Despite these losses, the company's Earnings Per Share (EPS) (EPS) stands at 0.85. This raises the question: is NetScout Systems significantly undervalued? This article aims to answer this question by providing a detailed valuation analysis of the company.
Introduction to NetScout Systems
NetScout Systems Inc is a leading provider of service assurance and cybersecurity solutions to enterprise and government networks. Its proprietary adaptive service intelligence technology enables customers to monitor performance issues and identify network-based security threats. The company's revenue primarily comes from the sale of network management tools and security solutions. Despite its current stock price of $22.3, the company's GF Value, an estimation of fair value, stands at $32.54, suggesting that the stock may be significantly undervalued.
Understanding the GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It is calculated based on historical trading multiples, a GuruFocus adjustment factor based on past returns and growth, and future estimates of business performance. The GF Value Line provides an overview of the fair value at which the stock should ideally be traded. 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.
NetScout Systems (NTCT, Financial) stock is estimated to be significantly undervalued based on the GuruFocus Value calculation. At its current price of $22.3 per share, NetScout Systems has a market cap of $1.60 billion, suggesting that the stock is significantly undervalued. As a result, the long-term return of its stock is likely to be much higher than its business growth.
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Financial Strength of NetScout Systems
Examining the financial strength of a company is crucial before investing in its stock. Companies with poor financial strength pose a higher risk of permanent loss. The cash-to-debt ratio and interest coverage are excellent indicators of a company's financial strength. NetScout Systems has a cash-to-debt ratio of 2.43, which is lower than 50.68% of 2729 companies in the Software industry. However, the overall financial strength of NetScout Systems is 8 out of 10, indicating strong financial health.
Profitability and Growth of NetScout Systems
Investing in consistently profitable companies offers less risk for investors. NetScout Systems has been profitable for 7 out of the past 10 years. In the past twelve months, the company reported a revenue of $916.90 million and an EPS of $0.85. Its operating margin of 8.95% ranks better than 68.26% of 2760 companies in the Software industry. Overall, the profitability of NetScout Systems is fair at 6 out of 10.
However, growth is a crucial factor in the valuation of a company. NetScout Systems's 3-year average revenue growth rate is worse than 66.67% of 2394 companies in the Software industry. Its 3-year average EBITDA growth rate is 6.9%, ranking worse than 54.73% of 1988 companies in the Software industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted cost of capital (WACC) is another way to evaluate its profitability. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, NetScout Systems's ROIC was 2.69, while its WACC came in at 8.05.
Conclusion
In conclusion, NetScout Systems (NTCT, Financial) appears to be significantly undervalued. The company's financial condition is strong, and its profitability is fair. However, its growth ranks worse than 54.73% of 1988 companies in the Software industry. To learn more about NetScout Systems stock, you can check out its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
