ISCA’s current PE is a tiny 7.61x based on past earnings, significantly lagging the Hospitality’s average of 22.88x. But should the inexpensive multiple be the final verdict of ISCA’s undervaluation? No. This is because multiples like PE tend to overlook key company-specific factors such as future growth and capital structure. In this article, I am going to take you through some key things to consider in order to identify which multiple is the most relevant for ISCA. Let’s dive in.
Is ISCA making any money?
The PE multiple is useful for when a company is profitable, which is the case with ISCA. This is because companies that are unprofitable or have recently become loss making cannot be valued using price-to-earnings since there are no earnings. For these companies, it is possible to compare price to other fundamentals like sales or book value where applicable. In the past, ISCA has always maintained its profitability. With upcoming earnings expected to remain positive, PE can be a valid multiple to apply to the company, however, there may be a better option.
Is ISCA in a lot of debt?
Using debt-to-equity as a guide, ISCA does have debt on the balance sheet but it is at a prudent level at the moment. Currently, ’s debt represents 15.90% of equity, meaning that for every $1 you invest, the company owes $0.16 to debtors. This is a suitable range, however, risk associated with debt obligation still exists, as with any company with debt on the books. This isn’t an alarming amount, but investors should still proceed with caution. You may be wondering how debt impacts an equity valuation. Well, the company’s share price theoretically represents the value of its equity portion only. However, it’s crucial to account for debt as well, since debt represents a liability to the owner, and it impacts the earnings capacity and risk profile of the company. The EV/EBITDA multiple, which uses EV as a substitute for share price, allows us to incorporate debt into our valuation.
ISCA’s EV/EBITDA = US$1.94b / US$0 = 8.96x
Does ISCA have a fast-growing outlook?
According to industry analyst consensus of earnings estimates, the bottom line is expected to decline by -21.90% every year for the next 5 years. This gives ISCA an adverse growth outlook, let alone a fast one. However, current earnings don’t reflect any of this potential decline in the future, which isn’t ideal as you are using past values to gauge future performance. Since a stock’s value should be reflective of future earnings, not the past, it may be best to use upcoming earnings as the denominator. Let’s adjust our previous multiple for future expectations by using projected EBITDA for the next year.
ISCA’s forward EV/EBITDA = US$1.94b /US$228.68m = 8.5x
Looking at relative valuation alone does not give you a complete picture of an investment. There are many important factors I have not taken into account in this article. If you have not done so already, I urge you to complete your research by taking a look at the following:
- Future Outlook: What are well-informed industry analysts predicting for ’s future growth? Take a look at our free research report of analyst consensus for ’s outlook.
- Past Track Record: Has been consistently performing well irrespective of the ups and downs in the market? Go into more detail in the past performance analysis and take a look at the free visual representations of ‘s historicals for more clarity.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.