Is System1 (USA Stocks:SST) ready for a correction?
 | By Rifka Kats | Macroaxis Story |
In investing, sometimes the best action is to pause and reassess. System1 ETF, with its current valuation at $302.58M and a market cap of $163.6M, might prompt such a moment of reflection. The company's operating margin stands at a loss of 0.18, and its return on assets is also in the red at 0.1, suggesting inefficiencies in generating profit from its assets. Despite a modest five-year return of 0.71%, the probability of bankruptcy looms large at 96%. With selling and marketing expenses hitting $113.5M, the financial picture appears strained. While the price-to-book ratio of 1.13X might seem attractive, the broader financial health raises questions. For investors, it might be time to weigh these factors carefully and consider whether System1 ETF aligns with their risk tolerance and investment goals. As concerns rise among some baby boomers about the interactive media and services sector, it's a good time to take a closer look at System1. Let's explore why there's still optimism for a rebound. Is the company's current valuation a fair estimate for 2025? I'll share my insights on this valuation to provide private investors with a clearer picture of whether taking a position in the System1 ETF is a sound decision.
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Reviewed by Gabriel Shpitalnik
Considering System1 ETF's low operating margin of 18% loss and its precarious current ratio of 0.73X, investors might want to rethink their positions as the financial stability appears strained. With a net debt standing at a hefty 211.37M, the valuation suggests caution before committing further capital.
Important Takeaways
System1 carries $274.98 million in debt, with a debt-to-equity ratio of 0.52, which is reasonable for its industry. However, its current ratio of 0.72 indicates a potential shortfall in short-term liquidity, meaning it might struggle to meet immediate financial obligations. While debt can fuel growth, it becomes problematic if System1 can't repay it through new capital or cash flow. In such cases, shareholders risk losing their investment. More commonly, companies like System1 might issue additional shares at lower prices, diluting existing ownership. Despite these challenges, debt can still be a valuable tool for funding high-return growth initiatives. It's crucial to evaluate System1's debt alongside its cash and equity. Currently, the stock appears overvalued at $8.83 per share, with only modest growth expectations.We determine the current worth of System1 using both absolute as well as relative valuation methodologies to arrive at its intrinsic value. In general, an absolute valuation paradigm, as applied to this etf, attempts to find the value of System1 based exclusively on its fundamental and basic technical indicators. By analyzing System1's financials, quarterly and monthly indicators, and related drivers such as dividends, operating cash flow, and various types of growth rates, we attempt to find the most accurate representation of System1's intrinsic value. In some cases, mostly for established, large-cap companies, we also incorporate more traditional valuation methods such as dividend discount, discounted cash flow, or asset-based models. As compared to an absolute model, our relative valuation model uses a comparative analysis of System1. We calculate exposure to System1's market risk, different technical and fundamental indicators, relevant financial multiples and ratios, and then comparing them to System1's related companies.
System1 Investment Alerts
System1 investment alerts and warnings help investors to get more proficient at understanding not only critical technical and fundamental signals but also the significant portfolio-centered indicators. These indicators include beta, alpha, and other risk-related measures that will help you in monitoring System1 performance across your portfolios.Please check all investment alerts for System1System1 Valuation Ratios as Compared to Competition
Our valuation model uses many indicators to compare System1 value to that of its competitors to determine the firm's financial worth. You can analyze the relationship between different fundamental ratios across System1 competition to find correlations between indicators driving the intrinsic value of System1.Sector Allocation
Exchange-Traded Funds use many different techniques to achieve diversification. One of the ways System1 ETF is managing risk is by picking assets from different sectors and across various asset classes. It helps to ensure that returns are uncorrelated, and risk is spread across the underlying asset classes and industries. Within the same asset class, diversification can be achieved by investing in various investment styles through cross-sector allocation. Below map breaks down System1 sector allocation.VolatilityAnother Deeper Perspective
System1 reported the last year's revenue of 343.93 M. Reported Net Loss for the year was (97.3 M) with profit before taxes, overhead, and interest of 48.18 M. They say "numbers don't lie," and when it comes to evaluating the System1 ETF, the figures certainly tell a compelling story. With a market capitalization of $163.57 million and a Price to Earnings ratio of 41.15x, the ETF appears to be trading at a premium, which might give some investors pause. The company's negative net income from continuing operations, reported as losses of 97.3 million, coupled with a quarterly earnings growth year-over-year decline of 95%, suggests potential challenges ahead. However, with insiders holding 56.55% of shares, there is a significant vested interest in turning things around. Investors might want to weigh these factors carefully and consider whether the current valuation aligns with their risk tolerance and investment goals.
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This story should be regarded as informational only and should not be considered a solicitation to sell or buy any financial products. Macroaxis does not express any opinion as to the present or future value of any investments referred to in this post. This post may not be reproduced without the consent of Macroaxis LLC. Macroaxis LLC and Rifka Kats do not own shares of System1. Please refer to our Terms of Use for any information regarding our disclosure principles.