Shares of Cray Inc (NASDAQ: CRAY) are receiving a lot of investor interest as of late due to the stock’s 36.3% increase over the last month. Shareholders are now asking themselves whether the company’s current stock price is reflective of its true value or if shares have even further upside from here.
Let’s take a look at Cray’s value and outlook based on its most recent financial data to see if there are any catalysts for a price change.
What Is Cray Worth?
Cray appears to be overvalued by -23.4% at the moment, based on 4 separate valuation models. The stock is currently trading at $27.85 on the market compared to our average intrinsic value of $21.35. This means that the opportunity to buy Cray at a good price has disappeared.
|Analysis||Model Fair Value||Upside (Downside)|
|10-yr DCF Revenue Exit||$19.41||-30.3%|
|5-yr DCF Revenue Exit||$26.04||-6.5%|
|Peer Revenue Multiples||$24.72||-11.2%|
|5-yr DCF EBITDA Exit||$15.22||-45.4%|
Click on any of the analyses above to view the latest model with real-time data.
However, will there be another opportunity to buy low in the future? Given that Cray’s stock is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) could mean the price can sink lower, giving investors another chance to buy in the future. This is based on its beta of 1.97, which is a good indicator for share price volatility.
How Much Growth Will Cray Generate?
Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company’s future expectations.
source: finbox.io data explorer
Cray’s revenue growth is expected to average 14.6% over the next five fiscal years, indicating a solid future ahead. Unless expenses grow at the same level, or higher, this top-line growth should lead to robust cash flows, feeding into a higher share value.
While many investors tend to categorize stocks as either value or growth plays, the most successful investors view growth in conjunction with a company’s value. Take legendary investor Peter Lynch for example, who is widely known for popularizing the term growth at a reasonable price (GARP).
GARP is a strategy that combines aspects of both growth and value investing techniques by finding high growth companies that don’t trade at overly high valuations. In the application of this strategy, Lynch achieved 29% annualized returns as the manager of Fidelity’s Magellan Fund from 1977 to 1990. Needless to say the importance of analyzing a company’s fair value in addition to its growth prospects.
Cray has positioned itself so that double-digit growth appears to be a reasonable assumption for the foreseeable future. However, this growth does not look highly attractive at current trading levels. As such, investors may want to hold off on buying or adding to their CRAY position for the time being.
However, if you have not done so already, I highly recommend you complete your research on Cray by taking a look at the following:
Efficiency Metrics: return on equity is used to measure the return that a firm generates on the book value of common equity. View Cray’s return on equity here.
Risk Metrics: what is Cray’s cash ratio which is used to assess a company’s short-term liquidity. View the company’s cash ratio here.
Valuation Metrics: what is Cray’s free cash flow yield and how does it compare to its publicly traded peers? This metric measures the amount of free cash flow for each dollar of equity (market capitalization). Analyze the free cash flow yield here.
As of this writing, I did not hold a position in any of the aforementioned securities and this is not a buy or sell recommendation on any security mentioned.