Autohome Inc (ATHM, Financial) has recently experienced a daily gain of 2.28%, despite a minor 3-month loss of -0.13%. With an Earnings Per Share (EPS) (EPS) of $2.26, the question arises: Is the stock fairly valued? In this analysis, we will dive deep into the financials of Autohome and its GF Value, a proprietary measure of a stock's intrinsic value, to answer this crucial question. Keep reading to gain a comprehensive understanding of Autohome's valuation.
Introduction to Autohome Inc
Autohome Inc is a leading automotive Internet platform based in the People's Republic of China. The company primarily provides media services, leads generation services, and an online marketplace. It offers comprehensive, independent, and interactive content to automobile buyers and owners, and also provides transaction services. Furthermore, Autohome provides subscription services to dealers, allowing them to market their inventory and services through the company's websites and mobile applications.
At a stock price of $30 per share, Autohome has a market cap of $3.70 billion. The company's GF Value, an estimation of its fair value, stands at $33.09, indicating that the stock might be fairly valued. This analysis will delve deeper into the company's value, combining financial assessment with essential company details.
Understanding GF Value
The GF Value represents the current intrinsic value of a stock derived from our exclusive method. The GF Value Line on our summary page gives an overview of the fair value that the stock should be traded at. It is calculated based on three factors:
- Historical multiples (PE Ratio, PS Ratio, PB Ratio and Price-to-Free-Cash-Flow) that the stock has traded at.
- GuruFocus adjustment factor based on the company's past returns and growth.
- Future estimates of the business performance.
Our analysis indicates that Autohome's stock appears to be fairly valued. The GF Value estimates the stock's fair value based on historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. If the stock's share price is significantly above the GF Value Line, the stock may be overvalued and have poor future returns. Conversely, if the stock's share price is significantly below the GF Value Line, the stock may be undervalued and have high future returns.
Since Autohome is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth.
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Autohome's Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, a careful review of a company's financial strength is crucial before deciding 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. Autohome has a cash-to-debt ratio of 10000, which ranks better than 99.82% of 571 companies in the Interactive Media industry. Based on this, GuruFocus ranks Autohome's financial strength as 10 out of 10, suggesting a strong balance sheet.
Autohome's Profitability and Growth
Investing in profitable companies, especially those that have demonstrated consistent profitability over the long term, poses less risk. A company with high profit margins is also typically a safer investment than one with low profit margins. Autohome has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $1 billion and Earnings Per Share (EPS) of $2.26. Its operating margin is 18.45%, which ranks better than 77.74% of 584 companies in the Interactive Media industry. Overall, GuruFocus ranks the profitability of Autohome at 8 out of 10, which indicates strong profitability.
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. Autohome's 3-year average revenue growth rate is worse than 78.02% of 514 companies in the Interactive Media industry. Autohome's 3-year average EBITDA growth rate is -22.7%, which ranks worse than 80.83% of 386 companies in the Interactive Media industry.
ROIC vs WACC
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, Autohome's return on invested capital is 18.93, and its cost of capital is 3.
Conclusion
In conclusion, the stock of Autohome gives every indication of being fairly valued. The company's financial condition is strong and its profitability is strong. Its growth ranks worse than 80.83% of 386 companies in the Interactive Media industry. To learn more about Autohome stock, you can check out its 30-Year Financials here.
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