DSP Group, Inc. (NASDAQGS:DSPG) is currently trading at $14.29, at approximately 76.1% of its 52-week high of $18.77. With the stock price up 0.4% in the last year, investors are worried that the company is getting too expensive. So, is DSP Group, Inc. overvalued? In this article, we’ll discuss DSP Group, Inc.’s valuation using different valuation models.
One of the quickest ways to spot if a company is getting too expensive is to compare the current valuation to its historical one. We can use the price to sales ratio to cut the noise and avoid the volatility of the company’s earnings.
Considering DSP Group, Inc.’s latest twelve months revenue/share of $4.97 and using the company’s 5-year average price to sales of 2.18x as a benchmark, we have a fair value of $10.83, which is -24.2% lower than the current price.
With no surprise, we can see that DSP Group, Inc.’s price to sales of 2.9x is much higher than its 5-year average of 2.2x, indicating that the company is probably trading in overbought territory. We can easily visualize trends in the company’s fundamentals using the Finbox chart editor, as depicted below.
Absolute Valuation: DSP Group, Inc. DCF Analysis
Using a company’s historical valuation as a benchmark could lead to misleading results if a change in its fundamentals justifies the current valuation. So it’s always preferable to take into account the latest financial forecast and analyze the company with an absolute valuation model.
So, let’s analyze DSP Group, Inc. with a 5Y DCF analysis (EBITDA exit method). Using the latest 5Y revenue forecast CAGR of 1.7%, an average EBITDA margin forecast of 5.3%, a discount rate of 9.5%, and a terminal EBITDA multiple of 13.8x, we get a fair value of $9.1.
So, Is DSP Group, Inc. Overvalued?
Relying only on one or two financial models to determine a company’s fair value is never a good idea. It’s always preferable to use different models before coming to hasty conclusions.
The Finbox Fair Value Estimate is an advanced financial modeling technology that uses eleven different models to estimate the fair value of a stock and lets you get a company’s fair value at your fingertips. All the models are based on the same data utilized by the biggest investment banks and money managers in the world.
According to the estimate, DSP Group, Inc.’s fair value is $11.31, representing a -20.8% downside from the current price. Below are the fair value estimates for each model.
Company’s Profile: DSP Group, Inc.
DSP Group, Inc., a fabless semiconductor company, provides wireless, audio, voice, and AI chipsets for smart-enabled devices. It operates through three segments: Home, Unified Communications, and SmartVoice.
The Home segment offers wireless chipset solutions for converged communication at home, including integrated circuits for cordless phones, home gateway devices, integrated circuits addressing home automation applications, and fixed-mobile convergence solutions.
The Unified Communications segment offers solution for unified communications products, including office solutions that offer businesses of all sizes VoIP terminals with converged voice and data applications. The SmartVoice segment offers products for the SmartVoice market that provide voice activation and recognition, voice enhancement, always-on and far-end noise elimination that target mobile phones, mobile hearables and headsets, and other devices that incorporate the company’s noise suppression and voice quality enhancement HDClear technology.
The company markets and distributes its products through direct sales and marketing offices; and a network of global distributors to original equipment manufacturers and original design manufacturers. It has operations in the United States, Europe, Israel, Hong Kong, China, Japan, South Korea, Taiwan, India, and internationally. DSP Group, Inc. was incorporated in 1987 and is headquartered in San Jose, California.