Today, we delve into the intrinsic value of VeriSign Inc (VRSN, Financial), a company that has seen a daily loss of 5.82% and a 3-month loss of 2.98%. Despite these losses, the company boasts an Earnings Per Share (EPS) (EPS) of 6.77. So, is the stock modestly undervalued as it seems? This article aims to answer this question by providing a comprehensive evaluation of VeriSign's value, financial strength, profitability, and growth. Let's dive in!
A Snapshot of VeriSign Inc (VRSN, Financial)
VeriSign is the sole authorized registry for several generic top-level domains, including the widely utilized .com and .net. The company operates critical internet infrastructure, supporting the domain name system and operating two of the world's 13 root servers used to route internet traffic. In 2018, VeriSign sold off its Security Services business, signaling a renewed focus on its core registry business. Despite a stock price of $192.63, the GF Value indicates a fair value of $256.38, suggesting that the stock might be undervalued.
Understanding the GF Value
The GF Value represents the current intrinsic value of a stock derived from our exclusive method. The GF Value Line on our summary page gives an overview of the fair value that the stock should be traded at. 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.
We believe the GF Value Line is the fair value that the stock should 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.
At its current price of $192.63 per share, VeriSign has a market cap of $19.90 billion and the stock is believed to be modestly undervalued. Because VeriSign is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth.
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VeriSign's Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it is critical to review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. VeriSign has a cash-to-debt ratio of 0.52, which ranks worse than 75.03% of 2739 companies in the Software industry. Based on this, GuruFocus ranks VeriSign's financial strength as 3 out of 10, suggesting poor balance sheet.
VeriSign's Profitability and Growth
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. VeriSign has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $1.50 billion and Earnings Per Share (EPS) of $6.77. Its operating margin is 66.48%, which ranks better than 99.49% of 2765 companies in the Software industry. Overall, the profitability of VeriSign is ranked 9 out of 10, which indicates strong profitability.
Growth is probably one of the most important factors in the valuation of a company. GuruFocus' research has found that growth is closely correlated with the long-term performance of a company's stock. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. VeriSign's 3-year average revenue growth rate is better than 50.44% of 2397 companies in the Software industry. VeriSign's 3-year average EBITDA growth rate is 7.2%, which ranks worse than 54.17% of 1992 companies in the Software industry.
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average 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. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, VeriSign's return on invested capital is 43.53, and its cost of capital is 10.64.
Conclusion
In summary, the stock of VeriSign (VRSN, Financial) is believed to be modestly undervalued. The company's financial condition is poor and its profitability is strong. Its growth ranks worse than 54.17% of 1992 companies in the Software industry. To learn more about VeriSign 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.
