The stock of Lifevantage (NAS:LFVN, 30-year Financials) is estimated to be possible value trap, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $7.63 per share and the market cap of $106.9 million, Lifevantage stock is estimated to be possible value trap. GF Value for Lifevantage is shown in the chart below.
The reason we think that Lifevantage stock might be a value trap is because
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It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. Lifevantage has a cash-to-debt ratio of 1.06, which is in the middle range of the companies in the industry of Consumer Packaged Goods. The overall financial strength of Lifevantage is 7 out of 10, which indicates that the financial strength of Lifevantage is fair. This is the debt and cash of Lifevantage over the past years:
It is less risky to invest in profitable companies, especially those with consistent profitability over long term. A company with high profit margins is usually a safer investment than those with low profit margins. Lifevantage has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of $224.8 million and earnings of $0.81 a share. Its operating margin is 7.67%, which ranks in the middle range of the companies in the industry of Consumer Packaged Goods. Overall, the profitability of Lifevantage is ranked 7 out of 10, which indicates fair profitability. This is the revenue and net income of Lifevantage over the past years:
Growth is probably one of the most important factors in the valuation of a company. GuruFocus’ research has found that growth is closely correlated with the long-term performance of a company’s stock. If a company’s business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. Lifevantage’s 3-year average revenue growth rate is in the middle range of the companies in the industry of Consumer Packaged Goods. Lifevantage’s 3-year average EBITDA growth rate is 55.4%, which ranks better than 94% of the companies in the industry of Consumer Packaged Goods.
Another way to look at the profitability of a company is to compare its return on invested capital and the weighted cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, Lifevantage’s return on invested capital is 42.80, and its cost of capital is 9.97. The historical ROIC vs WACC comparison of Lifevantage is shown below:
In closing, Lifevantage (NAS:LFVN, 30-year Financials) stock gives every indication of being possible value trap. The company's financial condition is fair and its profitability is fair. Its growth ranks better than 94% of the companies in the industry of Consumer Packaged Goods. To learn more about Lifevantage stock, you can check out its 30-year Financials here.
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