FormFactor Stock gives each I

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FormFactor’s stock (NAS: FORM, 30-year Financials) is showing all signs of significant overvaluation, according to the GuruFocus value calculation. 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, past business growth, and analysts’ estimates of future business performance. If a stock’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 $ 34.91 per share and market cap of $ 2.7 billion, FormFactor stock is showing all signs of significant overvaluation. The GF value for FormFactor is shown in the table below.

Given that FormFactor is significantly overvalued, its long-term stock return is likely to be much lower than the future growth of its business, which has averaged 5.9% over the past five years.

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Investing in companies with low financial strength presents a higher risk of permanent loss of capital. Thus, it is important to carefully consider the financial strength of a company before deciding whether or not to buy its shares. Examining the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a business. FormFactor has a cash-to-debt ratio of 3.68, which is around the average for companies in the semiconductor industry. GuruFocus ranks FormFactor’s overall financial strength as 8 out of 10, indicating that FormFactor’s financial strength is strong. Here is FormFactor’s debt and cash flow over the past few years:

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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. FormFactor has been profitable 4 in the past 10 years. In the past twelve months, the company achieved sales of $ 719.5 million and earnings of $ 1.04 per share. Its operating margin is 12.23%, which ranks among the average for companies in the semiconductor industry. Overall, FormFactor’s profitability is ranked 4 out of 10, indicating low profitability. Here is FormFactor’s revenue and bottom line for the past few years:

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Growth is probably the most important factor in the valuation of a business. GuruFocus research has shown that growth is closely tied to the long-term performance of a company’s stocks. The faster a business grows, the more likely it is to create shareholder value, especially if the growth is profitable. FormFactor’s 3-year average annual revenue growth rate is 5.9%, which ranks among the average for companies in the semiconductor industry. The 3-year average EBITDA growth rate is 11.5%, which is in line with the average for companies in the semiconductor industry.

Another way to look at the profitability of a business is to compare its return on invested capital and the weighted 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 its security holders to finance its assets. We want to have a return on invested capital greater than the weighted cost of capital. In the past 12 months, FormFactor’s return on invested capital is 13.57 and its cost of capital is 10.10.

In conclusion, FormFactor’s stock (NAS: FORM, 30-year Financials) is considered significantly overvalued. The company’s financial situation is strong and its profitability is poor. Its growth is in the mid-range of companies in the semiconductor industry. To learn more about the FormFactor share, you can view its 30-year financial data here.

To find out about high-quality companies that can deliver above-average returns, please see GuruFocus High Quality Low Capex Screener.

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