- By GF Value
The stock of iHeartMedia (NAS:IHRT, 30-year Financials) appears 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 $17.83 per share and the market cap of $2.5 billion, iHeartMedia stock is believed to be significantly overvalued. GF Value for iHeartMedia is shown in the chart below.
Warning! GuruFocus has detected 4 Warning Signs with IHRT. Click here to check it out.
IHRT 15-Year Financial Data
The intrinsic value of IHRT
Peter Lynch Chart of IHRT
Because iHeartMedia is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth.
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Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Thus, it is important to carefully review the financial strength of a company before deciding whether to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company. iHeartMedia has a cash-to-debt ratio of 0.11, which is worse than 86% of the companies in the industry of Media - Diversified. GuruFocus ranks the overall financial strength of iHeartMedia at 3 out of 10, which indicates that the financial strength of iHeartMedia is poor. This is the debt and cash of iHeartMedia over the past years:
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. iHeartMedia has been profitable 0 over the past 10 years. Over the past twelve months, the company had a revenue of $2.9 billion and loss of $13.122 a share. Its operating margin is -0.17%, which ranks in the middle range of the companies in the industry of Media - Diversified. Overall, the profitability of iHeartMedia is ranked 4 out of 10, which indicates poor profitability. This is the revenue and net income of iHeartMedia over the past years:
Growth is probably one of the most important factors 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. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. iHeartMedia's 3-year average revenue growth rate is worse than 68% of the companies in the industry of Media - Diversified. iHeartMedia's 3-year average EBITDA growth rate is -27.7%, which ranks worse than 83% of the companies in the industry of Media - Diversified.
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, iHeartMedia's return on invested capital is -0.06, and its cost of capital is 4.91.
Overall, the stock of iHeartMedia (NAS:IHRT, 30-year Financials) is estimated to be significantly overvalued. The company's financial condition is poor and its profitability is poor. Its growth ranks worse than 83% of the companies in the industry of Media - Diversified. To learn more about iHeartMedia stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.