Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. If a company’s business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. GuruFocus’ research has found that growth is closely correlated with the long-term performance of a company’s stock.
Growth is probably one of the most important factors in the valuation of a company. This is the revenue and net income of Sequential Brands Group over the past years: Overall, GuruFocus ranks the profitability of Sequential Brands Group at 4 out of 10, which indicates poor profitability. Its operating margin is 40.03%, which ranks better than 98% of the companies in the industry of Manufacturing - Apparel & Accessories. Over the past twelve months, the company had a revenue of $89.8 million and loss of $54.5 a share. Sequential Brands Group has been profitable 0 over the past 10 years. A company with high profit margins is also typically a safer investment than one with low profit margins. It poses less risk to invest in profitable companies, especially those that have demonstrated consistent profitability over the long term. This is the debt and cash of Sequential Brands Group over the past years: GuruFocus ranks the overall financial strength of Sequential Brands Group at 2 out of 10, which indicates that the financial strength of Sequential Brands Group is poor. Sequential Brands Group has a cash-to-debt ratio of 0.03, which is in the bottom 10% of the companies in the industry of Manufacturing - Apparel & Accessories. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company. Thus, it is important to carefully review the financial strength of a company before deciding whether to buy its stock. Investing in companies with poor financial strength has a higher risk of permanent loss of capital.
Link: These companies may deliever higher future returns at reduced risk. To learn more about how the Z-score measures the financial risk of the company, please go here. An Altman Z-score of above 2.99 would be better, indicating safe financial conditions.
The reason we think that Sequential Brands Group stock might be a value trap is because Sequential Brands Group has an Altman Z-score of -1.27, which indicates that the financial condition of the company is in the distressed zone and implies a higher risk of bankruptcy. GF Value for Sequential Brands Group is shown in the chart below. At its current price of $8.98 per share and the market cap of $14.9 million, Sequential Brands Group stock is estimated to be possible value trap. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. 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. 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. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. The stock of Sequential Brands Group ( NAS:SQBG, 30-year Financials) appears to be possible value trap, according to GuruFocus Value calculation.
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