WiseTech Global Stock Gives Every Indication Of Being Significantly Undervalued

GuruFocus.com
·4 min read

- By GF Value

The stock of WiseTech Global (ASX:WTC, 30-year Financials) shows every sign of being significantly undervalued, 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 AUD 26 per share and the market cap of AUD 8.4 billion, WiseTech Global stock gives every indication of being significantly undervalued. GF Value for WiseTech Global is shown in the chart below.


WiseTech Global Stock Gives Every Indication Of Being Significantly Undervalued
WiseTech Global Stock Gives Every Indication Of Being Significantly Undervalued

Because WiseTech Global is significantly undervalued, the long-term return of its stock is likely to be much higher than its business growth, which averaged 36.9% over the past three years and is estimated to grow 18.94% annually over the next three to five years.

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

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. WiseTech Global has a cash-to-debt ratio of 6.16, which which ranks in the middle range of the companies in Software industry. The overall financial strength of WiseTech Global is 8 out of 10, which indicates that the financial strength of WiseTech Global is strong. This is the debt and cash of WiseTech Global over the past years:

WiseTech Global Stock Gives Every Indication Of Being Significantly Undervalued
WiseTech Global Stock Gives Every Indication Of Being Significantly Undervalued

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. WiseTech Global has been profitable 8 over the past 10 years. Over the past twelve months, the company had a revenue of AUD 462.2 million and earnings of AUD 0.452 a share. Its operating margin is 21.61%, which ranks better than 89% of the companies in Software industry. Overall, the profitability of WiseTech Global is ranked 7 out of 10, which indicates fair profitability. This is the revenue and net income of WiseTech Global over the past years:

WiseTech Global Stock Gives Every Indication Of Being Significantly Undervalued
WiseTech Global Stock Gives Every Indication Of Being Significantly Undervalued

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 WiseTech Global is 36.9%, which ranks better than 90% of the companies in Software industry. The 3-year average EBITDA growth is 58.5%, which ranks better than 91% of the companies in Software 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, WiseTech Global's return on invested capital is 7.97, and its cost of capital is 6.41. The historical ROIC vs WACC comparison of WiseTech Global is shown below:

WiseTech Global Stock Gives Every Indication Of Being Significantly Undervalued
WiseTech Global Stock Gives Every Indication Of Being Significantly Undervalued

To conclude, WiseTech Global (ASX:WTC, 30-year Financials) stock is estimated to be significantly undervalued. The company's financial condition is strong and its profitability is fair. Its growth ranks better than 91% of the companies in Software industry. To learn more about WiseTech Global 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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