Yahoo Finance Winmark Stock Appears To Be Modestly Overvalued
- By GF Value
The stock of Winmark (NAS:WINA, 30-year Financials) gives every indication of being modestly 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 $199.25 per share and the market cap of $737.4 million, Winmark stock gives every indication of being modestly overvalued. GF Value for Winmark is shown in the chart below.
Because Winmark is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth, which averaged 2.1% over the past five years.
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Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. Winmark has a cash-to-debt ratio of 0.59, which which ranks in the middle range of the companies in the industry of Retail - Cyclical. The overall financial strength of Winmark is 5 out of 10, which indicates that the financial strength of Winmark is fair. This is the debt and cash of Winmark 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. Winmark has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $66.1 million and earnings of $8.25 a share. Its operating margin is 64.68%, which ranks better than 100% of the companies in the industry of Retail - Cyclical. Overall, the profitability of Winmark is ranked 8 out of 10, which indicates strong profitability. This is the revenue and net income of Winmark 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 Winmark is 2.1%, which ranks in the middle range of the companies in the industry of Retail - Cyclical. The 3-year average EBITDA growth is 5.6%, which ranks in the middle range of the companies in the industry of Retail - Cyclical.
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, Winmark's return on invested capital is 150.96, and its cost of capital is 6.64. The historical ROIC vs WACC comparison of Winmark is shown below:
In summary, the stock of Winmark (NAS:WINA, 30-year Financials) appears to be modestly overvalued. The company's financial condition is fair and its profitability is strong. Its growth ranks in the middle range of the companies in the industry of Retail - Cyclical. To learn more about Winmark stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.
