As of August 9, 2023, Akamai Technologies Inc (AKAM, Financial) has seen a daily gain of 9.27% and a 3-month gain of 31.38%. The company's Earnings Per Share (EPS) (EPS) stands at 2.86. With these figures, one might wonder, is the stock modestly undervalued? In this article, we delve into the valuation analysis of Akamai Technologies to answer this question.
Company Introduction
Akamai Technologies Inc operates a content delivery network (CDN), strategically placing servers at the edges of networks to provide faster, secure, and high-quality content delivery for its customers. With over 325,000 servers distributed over 4,100 points of presence in more than 1,000 cities worldwide, the company serves media companies, e-commerce firms, financial institutions, and other enterprises with high-traffic websites. Akamai Technologies also offers substantial cybersecurity services integrated with its core delivery and computing businesses.
The company's stock price stands at $103.75, while its GF Value, an estimation of fair value, is $127.07. This discrepancy paves the way for a deeper exploration of the company's value.
Understanding the GF Value
The GF Value is a proprietary measure of a stock's intrinsic value, computed based on historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. It provides an overview of the fair value at which the stock should ideally be traded.
According to the GF Value calculation, Akamai Technologies (AKAM, Financial) appears to be modestly undervalued. The company's current price of $103.75 per share and a market cap of $15.80 billion suggest that the stock's long-term return is likely to be higher than its business growth, given its relative undervaluation.
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Assessing Financial Strength
Investing in companies with poor financial strength carries a higher risk of permanent capital loss. Akamai Technologies has a cash-to-debt ratio of 0.23, which is worse than 86.23% of companies in the Software industry. However, with an overall financial strength rank of 6 out of 10, Akamai Technologies' financial strength is deemed fair.
Profitability and Growth
Investing in profitable companies, especially those with consistent long-term profitability, is less risky. Akamai Technologies has been profitable 10 years over the past decade. With a revenue of $3.60 billion and an operating margin of 19.47%, the company ranks better than 88.62% of companies in the Software industry in terms of profitability. The profitability of Akamai Technologies is ranked 9 out of 10, indicating strong profitability.
However, growth is a crucial factor in the valuation of a company. The 3-year average annual revenue growth of Akamai Technologies is 8.6%, which ranks better than 51.45% of companies in the Software industry. But its 3-year average EBITDA growth rate is 8.2%, which ranks worse than 52.19% of companies in the Software industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) and the weighted average cost of capital (WACC) is another way to assess its profitability. For the past 12 months, Akamai Technologies' ROIC is 8.14, while its WACC is 8.35.
Conclusion
In conclusion, Akamai Technologies (AKAM, Financial) appears to be modestly undervalued. The company's financial condition is fair, and its profitability is strong. However, its growth ranks worse than 52.19% of companies in the Software industry. For more information about Akamai Technologies stock, you can check out its 30-Year Financials here.
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