Axcelis Technologies Stock Gives Every Indication Of Being Significantly Overvalued

GuruFocus.com
·4 min read

- By GF Value

The stock of Axcelis Technologies (NAS:ACLS, 30-year Financials) appears to be significantly overvalued, 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 $47.6 per share and the market cap of $1.6 billion, Axcelis Technologies stock shows every sign of being significantly overvalued. GF Value for Axcelis Technologies is shown in the chart below.


Axcelis Technologies Stock Gives Every Indication Of Being Significantly Overvalued
Axcelis Technologies Stock Gives Every Indication Of Being Significantly Overvalued

Because Axcelis Technologies is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 4.2% over the past three years and is estimated to grow 7.59% annually over the next three to five years.

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

Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Thus, it is important to carefully review the financial strength of a company before deciding whether to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company. Axcelis Technologies has a cash-to-debt ratio of 4.23, which is in the middle range of the companies in Semiconductors industry. GuruFocus ranks the overall financial strength of Axcelis Technologies at 7 out of 10, which indicates that the financial strength of Axcelis Technologies is fair. This is the debt and cash of Axcelis Technologies over the past years:

Axcelis Technologies Stock Gives Every Indication Of Being Significantly Overvalued
Axcelis Technologies Stock Gives Every Indication Of Being Significantly Overvalued

Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Axcelis Technologies has been profitable 7 over the past 10 years. Over the past twelve months, the company had a revenue of $474.6 million and earnings of $1.47 a share. Its operating margin is 12.23%, which ranks better than 66% of the companies in Semiconductors industry. Overall, the profitability of Axcelis Technologies is ranked 6 out of 10, which indicates fair profitability. This is the revenue and net income of Axcelis Technologies over the past years:

Axcelis Technologies Stock Gives Every Indication Of Being Significantly Overvalued
Axcelis Technologies Stock Gives Every Indication Of Being Significantly Overvalued

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 Axcelis Technologies is 4.2%, which ranks in the middle range of the companies in Semiconductors industry. The 3-year average EBITDA growth is 8.8%, which ranks in the middle range of the companies in Semiconductors industry.

Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted 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 ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Axcelis Technologies's ROIC was 13.94, while its WACC came in at 11.03. The historical ROIC vs WACC comparison of Axcelis Technologies is shown below:

Axcelis Technologies Stock Gives Every Indication Of Being Significantly Overvalued
Axcelis Technologies Stock Gives Every Indication Of Being Significantly Overvalued

In short, the stock of Axcelis Technologies (NAS:ACLS, 30-year Financials) is believed to be significantly overvalued. The company's financial condition is fair and its profitability is fair. Its growth ranks in the middle range of the companies in Semiconductors industry. To learn more about Axcelis Technologies 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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