NETSOL Technologies Stock Gives Every Indication Of Being Fairly Valued

GuruFocus.com
·4 min read

- By GF Value

The stock of NETSOL Technologies (NAS:NTWK, 30-year Financials) appears to be fairly valued, 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 $4.22 per share and the market cap of $47.9 million, NETSOL Technologies stock is believed to be fairly valued. GF Value for NETSOL Technologies is shown in the chart below.


NETSOL Technologies Stock Gives Every Indication Of Being Fairly Valued
NETSOL Technologies Stock Gives Every Indication Of Being Fairly Valued

Because NETSOL Technologies is fairly valued, the long-term return of its stock is likely to be close to the rate of 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. NETSOL Technologies has a cash-to-debt ratio of 2.27, which is in the middle range of the companies in Software industry. The overall financial strength of NETSOL Technologies is 6 out of 10, which indicates that the financial strength of NETSOL Technologies is fair. This is the debt and cash of NETSOL Technologies over the past years:

NETSOL Technologies Stock Gives Every Indication Of Being Fairly Valued
NETSOL Technologies Stock Gives Every Indication Of Being Fairly Valued

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. NETSOL Technologies has been profitable 7 years over the past 10 years. During the past 12 months, the company had revenues of $52.9 million and earnings of $0.23 a share. Its operating margin of 3.63% in the middle range of the companies in Software industry. Overall, GuruFocus ranks NETSOL Technologies's profitability as fair. This is the revenue and net income of NETSOL Technologies over the past years:

NETSOL Technologies Stock Gives Every Indication Of Being Fairly Valued
NETSOL Technologies Stock Gives Every Indication Of Being Fairly Valued

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. NETSOL Technologies's 3-year average revenue growth rate is worse than 80% of the companies in Software industry. NETSOL Technologies's 3-year average EBITDA growth rate is -0.7%, which ranks worse than 71% of the companies in Software industry.

One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). 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. If the return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, NETSOL Technologies's ROIC is 2.77 while its WACC came in at 6.83. The historical ROIC vs WACC comparison of NETSOL Technologies is shown below:

NETSOL Technologies Stock Gives Every Indication Of Being Fairly Valued
NETSOL Technologies Stock Gives Every Indication Of Being Fairly Valued

In summary, the stock of NETSOL Technologies (NAS:NTWK, 30-year Financials) appears to be fairly valued. The company's financial condition is fair and its profitability is fair. Its growth ranks worse than 71% of the companies in Software industry. To learn more about NETSOL Technologies stock, you can check out its 30-year Financials here.

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This article first appeared on GuruFocus.