With a notable daily gain of 6.09%, but a 3-month loss of 10.9%, investors are taking a closer look at Formula Systems (1985) Ltd (FORTY, Financial). The company's Earnings Per Share (EPS) stands at 4.12, prompting the question: Is the stock significantly undervalued? The following valuation analysis seeks to uncover the true worth of Formula Systems (1985) Ltd (FORTY) and whether investors might be overlooking a potential investment opportunity.
Company Introduction
Formula Systems (1985) Ltd (FORTY, Financial) is a holding company that, through its subsidiaries, is a key player in the information technology services industry. The company is primarily divided into three segments, with the Matrix segment being the most significant revenue generator, offering software development and expansion services. Sapiens and Magic Software segments cater to the insurance industry and provide vendor management and workforce management services, respectively. With the majority of its revenue stemming from Israel, the company's current stock price of $64.06 is set against a GF Value of $97.27, suggesting a potential undervaluation that warrants a deeper analysis.
Summarize GF Value
The GF Value is a unique intrinsic value assessment, incorporating historical trading multiples, a GuruFocus adjustment factor based on past performance, and future business performance projections. When a stock's price significantly deviates from the GF Value Line—either above or below—investors can anticipate corresponding impacts on future returns. Currently, Formula Systems (1985) Ltd (FORTY, Financial) appears to be significantly undervalued with a market cap of $1 billion, hinting at potentially higher long-term returns for its investors.
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Financial Strength
Investing in companies with robust financial strength is crucial to minimize the risk of permanent capital loss. Formula Systems (1985)'s cash-to-debt ratio of 0.68 places it below 69.91% of its industry peers, suggesting room for improvement. Despite this, the company's overall financial strength score is a fair 6 out of 10.
Profitability and Growth
Formula Systems (1985) has demonstrated consistent profitability over the past decade, with a strong operating margin of 9.07% that outperforms 69.42% of the companies in the software industry. This profitability, coupled with a revenue of $2.60 billion and an EPS of $4.12, secures the company a high profitability rank of 8 out of 10.
When it comes to growth, Formula Systems (1985) boasts a 3-year average annual revenue growth of 14.4%, surpassing 63.89% of its industry counterparts. The 3-year average EBITDA growth rate of 20.1% further underscores the company's solid growth trajectory.
ROIC vs. WACC
Comparing Return on Invested Capital (ROIC) with Weighted Average Cost of Capital (WACC) provides insights into a company's value creation efficiency. Formula Systems (1985) has an ROIC of 8.98, which exceeds its WACC of 6.99, indicating that the company is generating value for its shareholders.
Conclusion
In conclusion, the stock of Formula Systems (1985) Ltd (FORTY, Financial) presents a compelling case for being significantly undervalued. The company's fair financial condition, strong profitability, and commendable growth rate suggest that it may offer above-average returns for investors. To delve deeper into Formula Systems (1985)'s financials, interested investors can explore the company's 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.
