Yahoo Finance Old Dominion Freight Line Stock Gives Every Indication Of Being Significantly Overvalued
- By GF Value
The stock of Old Dominion Freight Line (NAS:ODFL, 30-year Financials) is estimated to be significantly overvalued, 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 $255.4 per share and the market cap of $29.6 billion, Old Dominion Freight Line stock appears to be significantly overvalued. GF Value for Old Dominion Freight Line is shown in the chart below.
Because Old Dominion Freight Line is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 7.6% over the past three years and is estimated to grow 7.79% annually over the next three to five years.
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Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Thus, it is important to carefully review the financial strength of a company before deciding whether to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company. Old Dominion Freight Line has a cash-to-debt ratio of 6.63, which is better than 91% of the companies in Transportation industry. GuruFocus ranks the overall financial strength of Old Dominion Freight Line at 8 out of 10, which indicates that the financial strength of Old Dominion Freight Line is strong. This is the debt and cash of Old Dominion Freight Line over the past years:
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Old Dominion Freight Line has been profitable 10 years over the past 10 years. During the past 12 months, the company had revenues of $4.2 billion and earnings of $6.27 a share. Its operating margin of 23.91% better than 89% of the companies in Transportation industry. Overall, GuruFocus ranks Old Dominion Freight Line's profitability as strong. This is the revenue and net income of Old Dominion Freight Line over the past years:
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Old Dominion Freight Line is 7.6%, which ranks better than 77% of the companies in Transportation industry. The 3-year average EBITDA growth is 15.8%, which ranks better than 75% of the companies in Transportation industry.
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, Old Dominion Freight Line's return on invested capital is 21.78, and its cost of capital is 7.26. The historical ROIC vs WACC comparison of Old Dominion Freight Line is shown below:
Overall, Old Dominion Freight Line (NAS:ODFL, 30-year Financials) stock is estimated to be significantly overvalued. The company's financial condition is strong and its profitability is strong. Its growth ranks better than 75% of the companies in Transportation industry. To learn more about Old Dominion Freight Line stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.
