Citrix Systems Inc. (NASDAQ:CTXS) has demonstrated stable earnings over the last ten years, a trait that will often attract investors. However, Benjamin Graham, the father of value investing, taught that the most important aspect to consider is whether the company is trading at a discount relative to its intrinsic value. It is through a thorough fundamental analysis that the investor is able to make a determination about a potential investment's merits. Here is a look at how Citrix Systems Inc. fares in the ModernGraham valuation model.
The model is inspired by the teachings of Benjamin Graham and considers numerous metrics intended to help the investor reduce risk levels. The first part of the analysis is to determine whether the company is suitable for the very conservative Defensive Investor or the less conservative Enterprising Investor, who is willing to spend a greater amount of time conducting further research.
In addition, Graham strongly suggested that investors avoid speculation in order to remove the subjective elements of emotion. This is best achieved by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company. By using the ModernGraham method one can review a company's historical accomplishments and determine an intrinsic value that can be compared across industries.
Defensive Investor - must pass at least 6 of the following 7 tests: Score = 3/7
Enterprising Investor - must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 2/5
|MG Opinion||Fairly Valued|
|Value Based on 3% Growth||$32.94|
|Value Based on 0% Growth||$19.31|
|Market Implied Growth Rate||10.02%|
|Net Current Asset Value (NCAV)||-$10.20|
Balance Sheet - September 2014
Earnings Per Share
Earnings Per Share - ModernGraham
Citrix Systems Inc. does not pay a dividend.Conclusion:
As shown by the data, it is clear that conservative value investors may wish to seek other opportunities. The Defensive Investor is concerned with the low current ratio in combination with the lack of dividend payments and the high PEmg and PB ratios, while the Enterprising Investor has concerns with the high level of debt relative to the current assets along with the lack of dividends. As a result, both investor types would find the company to be too risky to proceed. That said, any investor willing to speculate about the future of the company may go ahead with the next step of the analysis, which is a determination of the company's intrinsic value.
When calculating an estimate of intrinsic value, it is important to consider the historical earnings results along with the market's implied estimate for future growth. Here, the company has grown its EPSmg (normalized earnings) from $1.17 in 2010 to an estimated $2.27 for 2014. This level of demonstrated growth is fairly strong, and is within a margin of safety relative to the market's implied estimate of 10.02%. As a result, the company appears to be fairly valued at the present time.
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