How Do Value-Focused Investors See Futu Shares?

Futu was one of the market's biggest losers today, losing 7.1% of its value and underperforming the S&P500 and Dow Industrial composite indices by 7.0% and 7.5% respectively. The mid-cap Financial Services company ended the day at $52.39, but is still well above its 52 week low of $21.23 and is 15.06% below its average target price of $61.68. Over the last 12 months, Futu is up 13.4%, and has outperformed the S&P 500 by 25.7%. The stock has an average analyst rating of buy.

Futu has a trailing 12 month price to earnings (P/E) ratio of 23.8, which corresponds to its share price divided by its trailing earnings per share (Eps) of $2.2. The company's forward P/E ratio is 16.2 based on its forward Eps of $3.23.

Earnings refer to the net income of the company from its sales operations, and the P/E ratio tells us how much investors are willing to pay for each dollar of these earnings. By way of comparison, the Financial Services sector has historically had an average P/E ratio of 13.34. Whether the company's P/E ratio is within a high or low range tells us how investors are currently valuing the stock's earning potential, but it doesn't tell us how its price will move in the future.

We can also understand a stock's valuation by looking at its Price to Book (P/B) Ratio, which is its share price divided by its book value per share. The book value refers to the present value of the company if it were liquidated today. Futu's P/B ratio of 0.4 indicates that the market value of the company is less than its market value, which indicates the company is potentially undervalued.

Much about the past and future prospects of the business are revealed by its profit margins. Since financial companies usually have no or little cost of goods sold, the profitability of the business is best viewed through the lens of operating margins, which take into account overhead. In Futu's case, its annual reports reveal the following operating margins information:

Date Reported Total Revenue ($) Operating Expenses ($) Operating Margins (%) YoY Growth (%)
2021-12-31 6,738,418,000.0 3,555,605,000.0 47.23 0.57
2020-12-31 3,125,732,000.0 1,657,871,000.0 46.96 142.94
2019-12-31 972,317,000.0 784,362,000.0 19.33 -33.73
2018-12-31 715,719,000.0 506,960,000.0 29.17 n/a
  • Average operating margins: 35.7 %
  • Average operating margins growth rate: 36.6 %
  • Coefficient of variability (lower numbers indicate less volatility): 38.7 %

Fundamentally, Futu is profitable since its operating margins have on average been positive. However, a positive growth rate and consistency are the true hallmarks of a sound business so it's important to consider the average in context..

Our final point of analysis is Futu's free cash flow. While earnings and margins are calculated on the basis of a company's delivered goods, they do not actually represent physical payments that flow into the coffers. The actually money that the company has -- minus its capital expenditures -- is reported as its free cash flow, which for Futu is as follows:

Date Reported Cash Flow from Operations ($) Capital expenditures ($) Free Cash Flow ($) YoY Growth (%)
2021-12-31 6,011,971,000.0 -70,456,000.0 5,941,515,000.0 -70.89
2020-12-31 20,456,717,000.0 -44,649,000.0 20,412,068,000.0 1002.7
2019-12-31 1,969,434,000.0 -118,341,000.0 1,851,093,000.0 -58.42
2018-12-31 4,470,167,000.0 -18,791,000.0 4,451,376,000.0 n/a
  • Average free cash flow: $5,941,515,000.00
  • Average free cash flow growth rate: 291.1 %
  • Coefficient of variability (lower numbers indicating more stability): 102.1%

Free cash flow represents the money that Futu can use to either reinvest in the business or to reward its investors in the form of a dividend. Despite the company's recent cash flows being in the green, investors do not currently receive a dividend.

Overall, Futu seems to be a strong business with an attractive valuation in numeric terms. Potential investors may want to take a closer look at the stock, and focus on whether it also has qualitative factors that show that it can provide solid returns.

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.