- By GF Value
The stock of Taylor Devices (NAS:TAYD, 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 $11.9 per share and the market cap of $41.5 million, Taylor Devices stock appears to be significantly overvalued. GF Value for Taylor Devices is shown in the chart below.
Because Taylor Devices 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.
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. Taylor Devices has a cash-to-debt ratio of 10000.00, which is better than 100% of the companies in Industrial Products industry. GuruFocus ranks the overall financial strength of Taylor Devices at 10 out of 10, which indicates that the financial strength of Taylor Devices is strong. This is the debt and cash of Taylor Devices 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. Taylor Devices has been profitable 10 years over the past 10 years. During the past 12 months, the company had revenues of $23 million and earnings of $0.57 a share. Its operating margin of -1.91% worse than 80% of the companies in Industrial Products industry. Overall, GuruFocus ranks Taylor Devices's profitability as fair. This is the revenue and net income of Taylor Devices 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 performance of a company's stock. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Taylor Devices is 3.7%, which ranks in the middle range of the companies in Industrial Products industry. The 3-year average EBITDA growth rate is 5.6%, which ranks in the middle range of the companies in Industrial Products industry.
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average 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. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Taylor Devices's return on invested capital is -1.99, and its cost of capital is 6.80. The historical ROIC vs WACC comparison of Taylor Devices is shown below:
To conclude, The stock of Taylor Devices (NAS:TAYD, 30-year Financials) appears to be significantly overvalued. The company's financial condition is strong and its profitability is fair. Its growth ranks in the middle range of the companies in Industrial Products industry. To learn more about Taylor Devices stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.