Sequential Brands Group Stock Shows Every Sign Of Being Modestly Undervalued

GuruFocus.com
·4 min read

- By GF Value

The stock of Sequential Brands Group (NAS:SQBG, 30-year Financials) shows every sign of being modestly 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 $22.22 per share and the market cap of $36.7 million, Sequential Brands Group stock is estimated to be modestly undervalued. GF Value for Sequential Brands Group is shown in the chart below.


Sequential Brands Group Stock Shows Every Sign Of Being Modestly Undervalued
Sequential Brands Group Stock Shows Every Sign Of Being Modestly Undervalued

Because Sequential Brands Group is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth.

Link: These companies may deliever higher future returns at reduced risk.

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. Sequential Brands Group has a cash-to-debt ratio of 0.04, which is worse than 89% of the companies in the industry of Manufacturing - Apparel & Accessories. The overall financial strength of Sequential Brands Group is 2 out of 10, which indicates that the financial strength of Sequential Brands Group is poor. This is the debt and cash of Sequential Brands Group over the past years:

Sequential Brands Group Stock Shows Every Sign Of Being Modestly Undervalued
Sequential Brands Group Stock Shows Every Sign Of Being Modestly Undervalued

Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Sequential Brands Group has been profitable 0 years over the past 10 years. During the past 12 months, the company had revenues of $91.1 million and loss of $58.6 a share. Its operating margin of 36.83% better than 99% of the companies in the industry of Manufacturing - Apparel & Accessories. Overall, GuruFocus ranks Sequential Brands Group's profitability as poor. This is the revenue and net income of Sequential Brands Group over the past years:

Sequential Brands Group Stock Shows Every Sign Of Being Modestly Undervalued
Sequential Brands Group Stock Shows Every Sign Of Being Modestly Undervalued

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. Sequential Brands Group's 3-year average revenue growth rate is worse than 79% of the companies in the industry of Manufacturing - Apparel & Accessories. Sequential Brands Group's 3-year average EBITDA growth rate is -13.3%, which ranks worse than 73% of the companies in the industry of Manufacturing - Apparel & Accessories.

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, Sequential Brands Group's return on invested capital is 5.22, and its cost of capital is 8.42. The historical ROIC vs WACC comparison of Sequential Brands Group is shown below:

Sequential Brands Group Stock Shows Every Sign Of Being Modestly Undervalued
Sequential Brands Group Stock Shows Every Sign Of Being Modestly Undervalued

In closing, the stock of Sequential Brands Group (NAS:SQBG, 30-year Financials) gives every indication of being modestly undervalued. The company's financial condition is poor and its profitability is poor. Its growth ranks worse than 73% of the companies in the industry of Manufacturing - Apparel & Accessories. To learn more about Sequential Brands Group stock, you can check out its 30-year Financials here.

To find out the high quality companies that may deliever above average returns, please check out GuruFocus High Quality Low Capex Screener.

This article first appeared on GuruFocus.

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