Euronet Worldwide Inc (NASDAQ:EEFT): A Compelling Case for Value Investors

Electronic payment processor Euronet Worldwide Inc (NASDAQ:EEFT) presents a noteworthy case for investors using a value investing strategy. This method, established by Benjamin Graham and famously used by Warren Buffett, involves finding companies trading below their intrinsic value. The objective is to buy these undervalued assets and keep them until the market corrects the price difference. A disciplined value method includes a margin of safety and needs sound fundamentals to confirm the company is not a "value trap" but a real opportunity. Euronet's most recent fundamental analysis report indicates it may match this description.

Valuation Metrics

The most noticeable part of Euronet's profile is its very appealing valuation, which is the foundation of any value investment thesis. The company seems considerably undervalued compared to both its industry and the wider market.

• Price-to-Earnings (P/E) Ratio: At 7.76, EEFT's P/E ratio is much lower than the industry average of 32.40 and the S&P 500's average of 25.98. This shows investors are paying less for each dollar of Euronet's earnings compared to similar companies.
• Forward P/E Ratio: The forward P/E of 6.42 is even more noteworthy, indicating the stock is inexpensive relative to its anticipated future earnings and is valued lower than over 81% of its industry competitors.
• Enterprise Value to EBITDA: This measurement, often used to compare companies with different capital structures, is also positive, placing EEFT as less expensive than nearly 94% of its industry peers.

For a value investor, these valuation measurements are important as they show a possible margin of safety. A low purchase price relative to earnings offers a cushion against unexpected negative events and raises the possibility for capital gain as the market re-evaluates the company's value.

Financial Health and Profitability

While the valuation is the main point, a value stock must also show the financial strength to handle difficulties and maintain operations. Euronet's financial health and profitability ratings are neutral, showing a steady, if not outstanding, base.

The company's financial health score of 5 out of 10 shows a mixed situation. On the good side, Euronet is creating value as its Return on Invested Capital (ROIC) is higher than its cost of capital, and it has been lowering its number of outstanding shares. However, investors should be aware of its Debt-to-Free-Cash-Flow ratio of 7.20, which is elevated, showing it would take a number of years of cash flow to pay off all debt.

Profitability, scored at 6 out of 10, is supported by good returns. The company's Return on Equity (ROE) of 24.00% and Return on Invested Capital (ROIC) of 14.63% are some of the best in its industry, doing better than 88% and 92% of peers, in that order. This shows very efficient use of shareholder capital. These good returns are important for value investors, as they indicate a high-quality business able to generate solid profits from its assets, which supports the argument for a higher intrinsic value.

Growth Prospects

A company can be inexpensive for a cause, so evaluating its growth path is necessary to avoid a value trap. Euronet displays a modest but getting better growth profile, with a growth rating of 5 out of 10.

• Past Performance: Over the last year, Earnings Per Share (EPS) increased by a good 11.26%, while revenue went up by 7.25%.
• Future Expectations: Analysts predict a quickening in EPS growth to 13.77% each year in the next few years, together with a steady revenue growth of about 7.23%.

This anticipated quickening in earnings growth is a positive sign. For a value investor, it implies that the company is not motionless and that future earnings capacity could be greater than the present stock price suggests, possibly triggering a market re-rating.

Conclusion

Euronet Worldwide Inc stands for a possible chance for investors looking for undervalued companies with good underlying businesses. Its greatly reduced valuation measurements supply the margin of safety that value investors seek. This is supported by excellent returns on capital and a steady, improving growth view, which help reduce the risks connected to its higher debt level. While not without points for close examination, the mix of a low stock price and acceptable fundamentals makes EEFT a stock deserving of more study for value-focused portfolios.

You can find more investment ideas that fit this "Decent Value" profile by using the predefined screen on ChartMill.

Disclaimer: This article is for informational purposes only and does not constitute financial advice, a recommendation to buy or sell any security, or an offer to solicit any transaction. You should conduct your own due diligence and consult with a professional financial advisor before making any investment decisions.