TomTom stock intrinsic value versus share price update

Last year I wrote about TomTom: "Conclusion is still, sell now at 9,5 Euros." http://sinaas.blogspot.com/2017/05/sector-fail-tomtom-in-technology-sector.html

This week TomTom's shares have fallen from EUR 8,5 to EUR 6,05 after Google announced a deal to put Android entertainment and navigation in the Renault-Nissan-Mitsubishi Alliance cars. The alliance sells more cars than any other carmaker collective. TomTom CFO Titulaer according to ANP "would not give an indication of the impact of Google's deal on the future profitability of TomTom."
This analysis doesn't take the Google Alphabet deal into consideration but evaluates the situation until today.

Logarithmic graph

This logarithmic graph shows that the intrinsic Benjamin Graham value of TomTom has been in decline due to customers buying alternatives to TomTom's navigation hard- and software.

Here is the Graham Defensive analysis:

SECTOR: [FAIL] TomTom is in the Technology sector, which is one sector that this methodology avoids. Technology and financial stocks were considered too risky to invest in when this methodology was published. 

SALES: [PASS]  The investor must select companies of "adequate size". This includes companies with annual sales greater than €260 million. TomTom's sales of €825 million, based on 2018 sales prognosis, pass this test. On the other hand sales have been decreasing for a number of years!

CURRENT RATIO: [FAIL]  The current ratio must be greater than or equal to 2. Companies that meet this criterion are typically financially secure and defensive. TomTom's current ratio €380m/€351m of 1.1 fails the test.

LONG-TERM DEBT IN RELATION TO NET CURRENT ASSETS: [FAIL]  For industrial companies, long-term debt must not exceed net current assets (current assets minus current liabilities). Companies that do not meet this criterion lack the financial stability that this methodology likes to see. The long-term debt for TomTom is €319 million, while the net current assets are €29 million. TomTom fails this test.

LONG-TERM EPS GROWTH: [FAIL] Companies must increase their EPS by at least 30% over a ten-year period and EPS must not have been negative for any year within the last 5 years. Companies with this type of growth tend to be financially secure and have proven themselves over time. TomTom made losses in 2008, 2011 and 2017 and therefore fails this test.

Earnings Yield: [FAIL] The Earnings/Price (inverse P/E) %, based on the lesser of the current Earnings Yield or the Yield using average earnings over the last 3 fiscal years, must be "acceptable", which this methodology states is greater than 6,5%. Stocks with higher earnings yields are more defensive by nature. TomTom's E/P of 5% (using this year's estimated adjusted Earnings) fails this test.

Graham Number value: [FAIL]  The Price/Book ratio must also be reasonable. That is the Graham number value must be greater than the market price. TomTom has a Graham number of √(22,5 x €0,16 EPS x €3,24 Book Value) = €3,43

Conclusion: Even without the adverse effects of the Google deal, TomTom is still not a stock for the Graham Defensive Investor.

Disclosure: I own (Google) Alphabet shares through my participation in www.valuemachinesfund.nl Comments, questions or E-mails welcome: ajb@valuemachinesfund.nl