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A Short Intro for Sea Investors

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.

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.

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