It's been a great morning session for Sea investors, who saw their shares rise 1.4% to a price of $44.69 per share. At these higher prices, is the company still fairly valued? If you are thinking about investing, make sure to check the company's fundamentals before making a decision.
Sea Has Elevated P/B and P/E Ratios:
Sea Limited, together with its subsidiaries, engages in the digital entertainment, e-commerce, and digital financial service businesses in Southeast Asia, Latin America, rest of Asia, and internationally. The company belongs to the Consumer Discretionary sector, which has an average price to earnings (P/E) ratio of 22.33 and an average price to book (P/B) ratio of 3.12. In contrast, Sea has a trailing 12 month P/E ratio of 101.6 and a P/B ratio of 3.98.
When we divideSea's P/E ratio by its expected five-year EPS growth rate, we obtain a PEG ratio of 0.26, which indicates that the market is undervaluing the company's projected growth (a PEG ratio of 1 indicates a fairly valued company). Your analysis of the stock shouldn't end here. Rather, a good PEG ratio should alert you that it may be worthwhile to take a closer look at the stock.
The Company Has a Positive Net Current Asset Value:
| 2018-04-11 | 2019-03-01 | 2020-04-14 | 2021-04-16 | 2022-04-22 | |
|---|---|---|---|---|---|
| Revenue (MM) | $2,175 | $4,376 | $2,175 | $4,376 | $9,955 |
| Gross Margins | 28.0% | 31.0% | 28.0% | 31.0% | 39.0% |
| Operating Margins | -41% | -30% | -41% | -30% | -16% |
| Net Margins | -67.0% | -37.0% | -67.0% | -37.0% | -21.0% |
| Net Income (MM) | -$1,463 | -$1,618 | -$1,463 | -$1,618 | -$2,047 |
| Net Interest Expense (MM) | -$14 | -$123 | -$14 | -$123 | -$103 |
| Depreciation & Amort. (MM) | -$41 | -$79 | -$122 | -$181 | -$279 |
| Earnings Per Share | -$7.11 | -$4.78 | -$3.35 | -$3.39 | -$4.29 |
| EPS Growth | n/a | 32.77% | 29.92% | -1.19% | -26.55% |
| Diluted Shares (MM) | 206 | 338 | 437 | 477 | 477 |
| Free Cash Flow (MM) | -$180 | -$318 | $316 | $911 | $1,015 |
| Capital Expenditures (MM) | -$79 | -$178 | -$246 | -$355 | -$807 |
| Net Current Assets (MM) | $208 | $359 | $1,904 | $1,903 | $3,804 |
| Long Term Debt (MM) | $727 | $1,357 | $1,840 | $1,842 | $3,483 |
| LT Debt to Equity | 1.53 | 1.16 | 0.54 | 0.54 | 0.47 |
Sea has a pattern of improving cash flows and an excellent current ratio. Additionally, the company's financial statements display healthy debt levels and positive EPS growth. However, the firm suffers from slimmer gross margins than its peers and consistently negative margins with a positive growth rate. Finally, we note that Sea has weak revenue growth and a flat capital expenditure trend.
