- By GF Value
The stock of Zovio (NAS:ZVO, 30-year Financials) is believed to be fairly valued, 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 $3.81 per share and the market cap of $124.8 million, Zovio stock gives every indication of being fairly valued. GF Value for Zovio is shown in the chart below.
Because Zovio 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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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. Zovio has a cash-to-debt ratio of 1.09, which ranks in the middle range of the companies in Education industry. Based on this, GuruFocus ranks Zovio's financial strength as 5 out of 10, suggesting fair balance sheet. This is the debt and cash of Zovio over the past years:
It is less risky to invest in profitable companies, especially those with consistent profitability over long term. A company with high profit margins is usually a safer investment than those with low profit margins. Zovio has been profitable 6 over the past 10 years. Over the past twelve months, the company had a revenue of $397.1 million and loss of $1.5 a share. Its operating margin is 21.84%, which ranks better than 79% of the companies in Education industry. Overall, the profitability of Zovio is ranked 6 out of 10, which indicates fair profitability. This is the revenue and net income of Zovio over the past years:
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. Zovio's 3-year average revenue growth rate is worse than 77% of the companies in Education industry. Zovio's 3-year average EBITDA growth rate is 57.4%, which ranks better than 92% of the companies in Education industry.