SS&C Technologies Holdings Stock Shows Every Sign Of Being Modestly Overvalued

GuruFocus.com
·4 min read

- By GF Value

The stock of SS&C Technologies Holdings (NAS:SSNC, 30-year Financials) is believed to be modestly 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 $72.43 per share and the market cap of $18.5 billion, SS&C Technologies Holdings stock is believed to be modestly overvalued. GF Value for SS&C Technologies Holdings is shown in the chart below.


SS&C Technologies Holdings Stock Shows Every Sign Of Being Modestly Overvalued
SS&C Technologies Holdings Stock Shows Every Sign Of Being Modestly Overvalued

Because SS&C Technologies Holdings is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth, which averaged 30.3% over the past three years and is estimated to grow 3.06% 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. SS&C Technologies Holdings has a cash-to-debt ratio of 0.03, which is in the bottom 10% of the companies in Software industry. The overall financial strength of SS&C Technologies Holdings is 4 out of 10, which indicates that the financial strength of SS&C Technologies Holdings is poor. This is the debt and cash of SS&C Technologies Holdings over the past years:

SS&C Technologies Holdings Stock Shows Every Sign Of Being Modestly Overvalued
SS&C Technologies Holdings Stock Shows Every Sign Of Being Modestly Overvalued

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. SS&C Technologies Holdings has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $4.7 billion and earnings of $2.35 a share. Its operating margin is 21.12%, which ranks better than 89% of the companies in Software industry. Overall, GuruFocus ranks the profitability of SS&C Technologies Holdings at 9 out of 10, which indicates strong profitability. This is the revenue and net income of SS&C Technologies Holdings over the past years:

SS&C Technologies Holdings Stock Shows Every Sign Of Being Modestly Overvalued
SS&C Technologies Holdings Stock Shows Every Sign Of Being Modestly 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 performance of a company's stock. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of SS&C Technologies Holdings is 30.3%, which ranks better than 87% of the companies in Software industry. The 3-year average EBITDA growth rate is 30.3%, which ranks better than 76% of the companies in Software 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, SS&C Technologies Holdings's ROIC was 5.12, while its WACC came in at 8.91. The historical ROIC vs WACC comparison of SS&C Technologies Holdings is shown below:

SS&C Technologies Holdings Stock Shows Every Sign Of Being Modestly Overvalued
SS&C Technologies Holdings Stock Shows Every Sign Of Being Modestly Overvalued

In short, SS&C Technologies Holdings (NAS:SSNC, 30-year Financials) stock shows every sign of being modestly overvalued. The company's financial condition is poor and its profitability is strong. Its growth ranks better than 76% of the companies in Software industry. To learn more about SS&C Technologies Holdings 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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