- By GF Value
The stock of Sony Group (OTCPK:SNEJF, 30-year Financials) is estimated 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 $103.25 per share and the market cap of $130.3 billion, Sony Group stock appears to be significantly overvalued. GF Value for Sony Group is shown in the chart below.
Warning! GuruFocus has detected 9 Warning Signs with SNEJF. Click here to check it out.
SNEJF 15-Year Financial Data
The intrinsic value of SNEJF
Peter Lynch Chart of SNEJF
Because Sony Group is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 3.5% over the past three years and is estimated to grow 1.83% annually over the next three to five years.
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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. Sony Group has a cash-to-debt ratio of 1.83, which which ranks in the middle range of the companies in Hardware industry. The overall financial strength of Sony Group is 6 out of 10, which indicates that the financial strength of Sony Group is fair. This is the debt and cash of Sony Group 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. Sony Group has been profitable 6 over the past 10 years. Over the past twelve months, the company had a revenue of $80.5 billion and earnings of $8.18 a share. Its operating margin is 10.74%, which ranks better than 77% of the companies in Hardware industry. Overall, the profitability of Sony Group is ranked 5 out of 10, which indicates fair profitability. This is the revenue and net income of Sony Group 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 Sony Group is 3.5%, which ranks in the middle range of the companies in Hardware industry. The 3-year average EBITDA growth rate is 21.3%, which ranks better than 74% of the companies in Hardware 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, Sony Group's ROIC was 4.14, while its WACC came in at 4.67. The historical ROIC vs WACC comparison of Sony Group is shown below:
In closing, The stock of Sony Group (OTCPK:SNEJF, 30-year Financials) appears to be significantly overvalued. The company's financial condition is fair and its profitability is fair. Its growth ranks better than 74% of the companies in Hardware industry. To learn more about Sony Group stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.