Yahoo Finance The RMR Group Stock Is Estimated To Be Significantly Overvalued
- By GF Value
The stock of The RMR Group (NAS:RMR, 30-year Financials) is believed 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 $39.61 per share and the market cap of $650.1 million, The RMR Group stock is estimated to be significantly overvalued. GF Value for The RMR Group is shown in the chart below.
Because The RMR Group is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 3.7% over the past five years.
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Since investing in companies with low financial strength could result in permanent capital loss, investors must carefully review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. The RMR Group has a cash-to-debt ratio of 10.48, which ranks better than 85% of the companies in Real Estate industry. Based on this, GuruFocus ranks The RMR Group's financial strength as 6 out of 10, suggesting fair balance sheet. This is the debt and cash of The RMR Group over the past years:
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. The RMR Group has been profitable 7 over the past 10 years. Over the past twelve months, the company had a revenue of $577.3 million and earnings of $1.6 a share. Its operating margin is 11.33%, which ranks in the middle range of the companies in Real Estate industry. Overall, the profitability of The RMR Group is ranked 6 out of 10, which indicates fair profitability. This is the revenue and net income of The RMR Group over the past years:
Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term stock performance of a company. A faster growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of The RMR Group is 3.7%, which ranks in the middle range of the companies in Real Estate industry. The 3-year average EBITDA growth rate is -36.5%, which ranks worse than 88% of the companies in Real Estate industry.
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). 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. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, The RMR Group's ROIC was 19.07, while its WACC came in at 11.56. The historical ROIC vs WACC comparison of The RMR Group is shown below:
In summary, The RMR Group (NAS:RMR, 30-year Financials) stock is believed to be significantly overvalued. The company's financial condition is fair and its profitability is fair. Its growth ranks worse than 88% of the companies in Real Estate industry. To learn more about The RMR Group stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.
