With an average analyst rating of buy, Futu is clearly an analyst favorite. But the analysts could be wrong. Is FUTU overvalued at today's price of $92.01? Let's take a closer look at the fundamentals to find out.
Futu has a P/E ratio of 18.4 based on its 12 month trailing earnings per share of $5.01. Considering its future earnings estimates of $5.45 per share, the stock's forward P/E ratio is 16.9. In comparison, the average P/E ratio of the Finance sector is 15.92 and the average P/E ratio of the S&P 500 is 29.3.
We can also compare the ratio of Futu's market price to its book value, which gives us the price to book, or P/B ratio. A company's book value refers to its present equity value -- or what is left over when we subtract its liabilities from its assets. FUTU has a P/B ratio of 0.46, with any figure close to or below one indicating a potentially undervalued company.
A comparison of the share price versus company earnings and book value should be balanced by an analysis of the company's ability to pay its liabilities. One popular metric is the Quick Ratio, or Acid Test, which is the company's current assets minus its inventory and prepaid expenses divided by its current liabilities. Futu's quick ratio is 1.178. Generally speaking, a quick ratio above 1 signifies that the company is able to meet its liabilities.
The last factor we will review in our value analysis of Futu is its levered free cash flow, which is negative at $-821308000. The levered free cash flow represents the sum of all of the company's inflows and outflows of capital in the last quarter. A negative value means that Futu has no cash left over to re-invest in the business or to pay equity investors in the form of a dividend.
At Market Inference, we will keep monitoring Futu to see if the analysts were right to recommend the stock despite its valuation issues. We recognize that numbers don't always tell the whole story, and that qualitative factors often set high performing investments apart from the rest.
