Understanding the Tailwind Behind VIZIO.

Consumer electronics company VIZIO Holding stunned Wall Street today as it surged to $12.33, marking a 18.1% change compared to the S&P 500 and the Nasdaq indices, which logged 0% and -0.6% respectively. VZIO is -22.21% below its average analyst target price of $15.85, which implies there is more upside for the stock. As such, the average analyst rates it at buy.

As of the second quarter of 2022, the average Price to Earnings (P/E) ratio of US technology companies is 20.64, and the S&P 500 average is 15.97. The P/E ratio consists in the stock's share price divided by its earnings per share (Eps), which is how much investors are willing to spend for each dollar of the company's earnings. Earnings are the company's revenues minus the cost of goods sold, overhead, and taxes.

Vizio holding does not release its trailing 12 month P/E ratio since its earnings per share of $-0.29 are negative over the last year. But we can calculate it ourselves, which gives us a trailing P/E ratio for VZIO of -43.1. Based on the company's positive earnings guidance of $0.31, the stock has a forward P/E ratio of 39.8.

In contrast to earnings, which take into account taxes and overhead, gross profit margins are only the company's revenue minus the cost of goods. Analyzing gross profit margins as opposed to net (operating) margins gives a better picture of the company's pure profit potential and pricing power in its market, unclouded by other factors.

As such, it can provide insights into the company's competitive advantages -- or lack thereof. VZIO has gross profit margins of 14.5%, which shows that it is operating in a highly competitive market, where it is unable to raise its prices (and thus increase its margins) without losing customers to its competitors.

Companies have many other costs and sources of income besides what they make and lose in marketing their core products. Everything from equipment depreciation, returns on capital investments, legal costs, income from intellectual property, and interest payments on debt factor into the company's ultimate profitability. We can see the effect of these additional factors in VIZIO Holding's levered free cashflow of $-16,032,125.

If it weren't negative, the unlevered free cashflow would represent the amount of money available for reinvestment in the business, or for payments to equity investors in the form of a dividend. A negative cashflow over one or two quarters is not an immediate sign of financial troubles for VZIO, but a longterm trend of negative or highly erratic cashflow levels may indicate that the business is struggling.

Another valutation metric for analyzing a stock is its Price to Book (P/B) Ratio, which consists in its share price divided by its book value per share. The book value refers to the present liquidation value of the company, as if sold all of its assets and payed off all debts. As of the second quarter of 2022, the average P/B ratio for technology companies is 5.39. In contrast, the average P/B ratio of the S&P 500 is 2.95.

Vizio holding 's P/B ratio of 7.0 indicates that the market value of the company exceeds its book value by a factor of seven, so the company's assets may be highly overvalued -- even when compared to the lofty valuations common in the Technology sector.

For these reasons, Vizio holding is likely an overvalued stock since it has a negative P/E ratio, an inflated P/B ratio, low profit margins, and negative cashflows. It does have most analysts in its corner though, possibly owing to their analysis of qualitative factors relating to the business. Numbers don't always tell the whole story, but over the last year, VIZIO Holding has underperfomed the S&P 500 by 37.1%, moving -0.4%. We encourage you to do your own research into VZIO's fundamental values -- especially their trends over time.

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.