CD Projekt SA Stock Is Believed To Be Significantly Undervalued

GuruFocus.com
·4 min read

- By GF Value

The stock of CD Projekt SA (OTCPK:OTGLY, 30-year Financials) appears to be significantly undervalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock 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 $12.75 per share and the market cap of $5.1 billion, CD Projekt SA stock appears to be significantly undervalued. GF Value for CD Projekt SA is shown in the chart below.


CD Projekt SA Stock Is Believed To Be Significantly Undervalued
CD Projekt SA Stock Is Believed To Be Significantly Undervalued

Because CD Projekt SA is significantly undervalued, the long-term return of its stock is likely to be much higher than its business growth.

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It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. CD Projekt SA has a cash-to-debt ratio of 10000.00, which is better than 100% of the companies in Interactive Media industry. The overall financial strength of CD Projekt SA is 10 out of 10, which indicates that the financial strength of CD Projekt SA is strong. This is the debt and cash of CD Projekt SA over the past years:

CD Projekt SA Stock Is Believed To Be Significantly Undervalued
CD Projekt SA Stock Is Believed To Be Significantly Undervalued

It poses less risk to invest in profitable companies, especially those that have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. CD Projekt SA has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of $173.4 million and earnings of $0.175 a share. Its operating margin is 41.83%, which ranks better than 94% of the companies in Interactive Media industry. Overall, GuruFocus ranks the profitability of CD Projekt SA at 8 out of 10, which indicates strong profitability. This is the revenue and net income of CD Projekt SA over the past years:

CD Projekt SA Stock Is Believed To Be Significantly Undervalued
CD Projekt SA Stock Is Believed To Be Significantly Undervalued

One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of CD Projekt SA is -4.9%, which ranks worse than 71% of the companies in Interactive Media industry. The 3-year average EBITDA growth is -14.3%, which ranks worse than 80% of the companies in Interactive Media industry.

Another way to look at the profitability of a company is to compare its return on invested capital and the weighted 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. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, CD Projekt SA's return on invested capital is 27.58, and its cost of capital is 6.28. The historical ROIC vs WACC comparison of CD Projekt SA is shown below:

CD Projekt SA Stock Is Believed To Be Significantly Undervalued
CD Projekt SA Stock Is Believed To Be Significantly Undervalued

In conclusion, the stock of CD Projekt SA (OTCPK:OTGLY, 30-year Financials) is estimated to be significantly undervalued. The company's financial condition is strong and its profitability is strong. Its growth ranks worse than 80% of the companies in Interactive Media industry. To learn more about CD Projekt SA stock, you can check out its 30-year Financials here.

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This article first appeared on GuruFocus.