Twilio Stock Shows Every Sign Of Being Modestly Overvalued
- By GF Value
The stock of Twilio (NYSE:TWLO, 30-year Financials) is estimated 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 $309.91 per share and the market cap of $53.5 billion, Twilio stock appears to be modestly overvalued. GF Value for Twilio is shown in the chart below.
Because Twilio is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth, which averaged 40% over the past three years and is estimated to grow 35.21% 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. Twilio has a cash-to-debt ratio of 3.78, which is in the middle range of the companies in Interactive Media industry. The overall financial strength of Twilio is 6 out of 10, which indicates that the financial strength of Twilio is fair. This is the debt and cash of Twilio 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. Twilio has been profitable 0 over the past 10 years. Over the past twelve months, the company had a revenue of $2 billion and loss of $3.87 a share. Its operating margin is -30.07%, which ranks worse than 78% of the companies in Interactive Media industry. Overall, the profitability of Twilio is ranked 2 out of 10, which indicates poor profitability. This is the revenue and net income of Twilio over the past years:
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 Twilio is 40%, which ranks better than 85% of the companies in Interactive Media industry. The 3-year average EBITDA growth is -65.2%, which ranks in the bottom 10% of the companies in Interactive Media 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, Twilio's ROIC is -13.16 while its WACC came in at 11.04. The historical ROIC vs WACC comparison of Twilio is shown below:
In closing, the stock of Twilio (NYSE:TWLO, 30-year Financials) is believed to be modestly overvalued. The company's financial condition is fair and its profitability is poor. Its growth ranks in the bottom 10% of the companies in Interactive Media industry. To learn more about Twilio 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.
