Arcimoto Stock Shows Every Sign Of Being Possible Value Trap
- By GF Value
The stock of Arcimoto (NAS:FUV, 30-year Financials) gives every indication of being possible value trap, 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 $11.16 per share and the market cap of $399.1 million, Arcimoto stock appears to be possible value trap. GF Value for Arcimoto is shown in the chart below.
The reason we think that Arcimoto stock might be a value trap is because its Piotroski F-score is only 3, out of the total of 9. Such a low Piotroski F-score indicates the company is getting worse in multiple aspects in the areas of profitability, funding and efficiency. In this case, investors should look beyond the low valuation of the company and make sure it has no long-term risks. To learn more about how the Piotroski F-score measures the business trend of a company, please go here.
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Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. Arcimoto has a cash-to-debt ratio of 10.07, which which ranks better than 85% of the companies in Vehicles & Parts industry. The overall financial strength of Arcimoto is 6 out of 10, which indicates that the financial strength of Arcimoto is fair. This is the debt and cash of Arcimoto over the past years:
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. Arcimoto has been profitable 0 over the past 10 years. Over the past twelve months, the company had a revenue of $2.2 million and loss of $0.64 a share. Its operating margin is -799.95%, which ranks in the bottom 10% of the companies in Vehicles & Parts industry. Overall, the profitability of Arcimoto is ranked 1 out of 10, which indicates poor profitability. This is the revenue and net income of Arcimoto over the past years:
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 Arcimoto is 103.6%, which ranks better than 99% of the companies in Vehicles & Parts industry. The 3-year average EBITDA growth rate is -33.7%, which ranks in the bottom 10% of the companies in Vehicles & Parts 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, Arcimoto's ROIC is -151.65 while its WACC came in at 18.92. The historical ROIC vs WACC comparison of Arcimoto is shown below:
In closing, Arcimoto (NAS:FUV, 30-year Financials) stock shows every sign of being possible value trap. The company's financial condition is fair and its profitability is poor. Its growth ranks in the bottom 10% of the companies in Vehicles & Parts industry. To learn more about Arcimoto stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.
