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Monaker Group Stock Shows Every Sign Of Being Modestly Overvalued

The stock of Monaker Group (NAS:MKGI, 30-year Financials) appears 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 $3 per share and the market cap of $56.3 million, Monaker Group stock is estimated to be modestly overvalued. GF Value for Monaker Group is shown in the chart below.

Monaker Group GF Value Chart

Because Monaker Group is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth.

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Since investing in companies with low financial strength could result in permanent capital loss, investors must carefully review a company’s financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company’s financial strength. Monaker Group has a cash-to-debt ratio of 0.35, which ranks in the middle range of the companies in Travel & Leisure industry. Based on this, GuruFocus ranks Monaker Group’s financial strength as 2 out of 10, suggesting poor balance sheet. This is the debt and cash of Monaker Group over the past years:

debt and cash

Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Monaker Group has been profitable 1 years over the past 10 years. During the past 12 months, the company had revenues of $0.1 million and loss of $0.54 a share. Its operating margin of -5122.90% in the bottom 10% of the companies in Travel & Leisure industry. Overall, GuruFocus ranks Monaker Group’s profitability as poor. This is the revenue and net income of Monaker Group over the past years:

Revnue and Net Income

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 Monaker Group is -31.1%, which ranks worse than 89% of the companies in Travel & Leisure industry. The 3-year average EBITDA growth is 19.6%, which ranks better than 75% of the companies in Travel & Leisure 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, Monaker Group’s ROIC is -42.23 while its WACC came in at 19.30. The historical ROIC vs WACC comparison of Monaker Group is shown below:

ROIC vs WACC

In conclusion, the stock of Monaker Group (NAS:MKGI, 30-year Financials) shows every sign of being modestly overvalued. The company’s financial condition is poor and its profitability is poor. Its growth ranks better than 75% of the companies in Travel & Leisure industry. To learn more about Monaker Group stock, you can check out its 30-year Financials here.

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