Amidst a fluctuating stock market, Sprout Social Inc (SPT, Financial) recently experienced a daily loss of 6.01%, contrasting with a 3-month gain of 12.92%. With a reported Loss Per Share of $1.06, investors are questioning whether the stock is significantly undervalued. This article delves into Sprout Social's valuation, inviting readers to explore the following in-depth analysis to uncover the answer.
Company Introduction
Sprout Social Inc (SPT, Financial) is a cloud software developer that integrates social messaging, data, and workflows into a unified system of record, intelligence, and action. The company primarily generates revenue through software subscriptions. A key point of interest for investors is the comparison between Sprout Social's current stock price of $52.51 and its Fair Value (GF Value) of $97.65, which suggests a potential undervaluation. This valuation analysis will provide a clearer picture of Sprout Social's market value.
Summarize GF Value
The GF Value is a unique measure of a stock's intrinsic value, incorporating historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. Sprout Social's GF Value suggests that the stock is significantly undervalued. This assessment is based on historical trading patterns, past business growth, and analyst projections of future performance. With a market cap of $2.90 billion, the current price per share indicates that Sprout Social could offer a substantial long-term return, surpassing its business growth.
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Financial Strength
Investors must consider a company's financial strength to avoid permanent capital loss. Sprout Social's cash-to-debt ratio of 1.2 is lower than 62.78% of its peers in the Software industry. This positions Sprout Social's financial strength at a fair level, with a GuruFocus ranking of 6 out of 10. Below is a visual representation of the company's debt and cash over recent years.
Profitability and Growth
Long-term profitability is a key indicator of a company's investment potential. Sprout Social has faced challenges, with a operating margin of -20.73%, ranking lower than 74.75% of the Software industry. This results in a profitability rank of 3 out of 10. However, the company's 3-year average EBITDA growth rate of 28.4% is more promising, outperforming 76.59% of its industry counterparts.
ROIC vs WACC
Comparing a company's Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC) can reveal its value creation efficiency. Sprout Social's ROIC of -32.07 is currently below its WACC of 8.52, indicating challenges in generating cash flow relative to capital invested. The historical comparison of Sprout Social's ROIC vs WACC is illustrated below.
Conclusion
In summary, Sprout Social (SPT, Financial) appears significantly undervalued. The company maintains a fair financial condition and faces profitability challenges, yet its growth prospects remain strong within the Software industry. For a detailed exploration of Sprout Social's financials, investors can review 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.
