The stock of Tecsys (OTCPK: TCYSF, 30-year Financials) is estimated to be significantly overvalued, according to the calculation of GuruFocus Value. The GuruFocus Value is GuruFocus’s estimate of the fair value at which the stock is to trade. It is calculated based on the historical multiples at which the stock has traded, the company’s past growth, and analysts’ estimates of the company’s future performance. If a share’s price is significantly above the GF value line, it is overvalued and its future performance may be poor. On the other hand, if it is significantly below the GF value line, its future return is likely to be higher. At its current price of $ 35,03324 per share and a market cap of $ 501.4 million, Tecsys stock would be significantly overvalued. The GF value for Tecsys is shown in the table below.
Given that Tecsys is significantly overvalued, the long-term return on its stock is likely to be much lower than the future growth of its business, which has averaged 15.1% over the past three years and is expected to grow by 14%. 72% per year over the next three to five years. .
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It is always important to check the financial strength of a company before buying its shares. Investing in companies with low financial strength presents a higher risk of permanent loss. Examining the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a business. Tecsys has a cash-to-debt ratio of 2.44, which is around the average for companies in the software industry. The overall financial strength of Tecsys is 7 out of 10, which indicates that the financial strength of Tecsys is fair. Here is Tecsys’ debt and cash flow over the past few years:
It is less risky to invest in profitable companies, especially those whose profitability is constant over the long term. A business with high profit margins is generally a safer investment than one with low profit margins. Tecsys has been profitable 9 in the past 10 years. In the past twelve months, the company achieved sales of $ 95 million and earnings of $ 0.371 per share. Its operating margin is 8.68%, which ranks among the average for companies in the software industry. Overall, Tecsys’ profitability is ranked 7 out of 10, indicating acceptable profitability. Here is Tecsys’ turnover and net profit over the past few years:
Growth is probably the most important factor in the valuation of a business. GuruFocus research has shown that growth is closely linked to a company’s long-term market performance. A faster growing business creates more shareholder value, especially if the growth is profitable. Tecsys’ 3-year average annual revenue growth is 15.1%, which is better than 73% of companies in the software industry. The 3-year average EBITDA growth rate is 32.7%, which ranks better than 77% of companies in the software industry.
Another way to determine a company’s profitability is to compare its return on invested capital to the weighted average cost of capital. Return on Invested Capital (ROIC) measures the extent to which a business 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 should pay on average to all of its security holders to finance its assets. When the ROIC is higher than the WACC, it implies that the company creates value for the shareholders. Over the past 12 months, Tecsys’ return on invested capital is 9.22 and its cost of capital is 4.18. Tecsys’ historical ROIC vs WACC comparison is shown below:
In conclusion, the Tecsys share (OTCPK: TCYSF, 30 years Financials) would be largely overvalued. The company’s financial position is fair and its profitability is fair. Its growth ranks better than 77% of companies in the software industry. To find out more about Tecsys stock, you can view its 30-year financial data here.
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