Marvell Technology Group Stock Is Estimated To Be Significantly Overvalued

GuruFocus.com
·4 min read

- By GF Value

The stock of Marvell Technology Group (NAS:MRVL, 30-year Financials) is estimated 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 $49.6 per share and the market cap of $33.5 billion, Marvell Technology Group stock shows every sign of being significantly overvalued. GF Value for Marvell Technology Group is shown in the chart below.


Marvell Technology Group Stock Is Estimated To Be Significantly Overvalued
Marvell Technology Group Stock Is Estimated To Be Significantly Overvalued

Because Marvell Technology Group is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which is estimated to grow 12.42% annually over the next three to five years.

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. Marvell Technology Group has a cash-to-debt ratio of 0.56, which is worse than 73% of the companies in Semiconductors industry. The overall financial strength of Marvell Technology Group is 5 out of 10, which indicates that the financial strength of Marvell Technology Group is fair. This is the debt and cash of Marvell Technology Group over the past years:

Marvell Technology Group Stock Is Estimated To Be Significantly Overvalued
Marvell Technology Group Stock Is Estimated To Be Significantly Overvalued

It is less risky to invest in profitable companies, especially those with consistent profitability over long term. A company with high profit margins is usually a safer investment than those with low profit margins. Marvell Technology Group has been profitable 7 over the past 10 years. Over the past twelve months, the company had a revenue of $3 billion and loss of $0.42 a share. Its operating margin is -1.74%, which ranks worse than 76% of the companies in Semiconductors industry. Overall, the profitability of Marvell Technology Group is ranked 6 out of 10, which indicates fair profitability. This is the revenue and net income of Marvell Technology Group over the past years:

Marvell Technology Group Stock Is Estimated To Be Significantly Overvalued
Marvell Technology Group Stock Is Estimated To Be Significantly Overvalued

Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term stock performance of a company. A faster growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Marvell Technology Group is -2.1%, which ranks in the middle range of the companies in Semiconductors industry. The 3-year average EBITDA growth rate is -18.1%, which ranks worse than 86% of the companies in Semiconductors industry.

Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average 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. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Marvell Technology Group's return on invested capital is -0.45, and its cost of capital is 8.06. The historical ROIC vs WACC comparison of Marvell Technology Group is shown below:

Marvell Technology Group Stock Is Estimated To Be Significantly Overvalued
Marvell Technology Group Stock Is Estimated To Be Significantly Overvalued

Overall, The stock of Marvell Technology Group (NAS:MRVL, 30-year Financials) appears to be significantly overvalued. The company's financial condition is fair and its profitability is fair. Its growth ranks worse than 86% of the companies in Semiconductors industry. To learn more about Marvell Technology 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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