Advanced Energy Industries Inc (NASDAQ:AEIS) experienced a daily loss of 7.44%, and a 3-month loss of 1.08%. Despite these figures, the company's Earnings Per Share (EPS) stands at 4.67. This brings us to the question, is AEIS fairly valued? In this article, we will conduct a valuation analysis to answer this question. Let's dive into the details.
Introduction to Advanced Energy Industries
Advanced Energy Industries Inc provides precision power-conversion measurement and control solutions that transform power into various forms for use in manufacturing and industrial equipment and applications. The firm serves original equipment manufacturers and end customers in the semiconductor, flat panel display, solar panel, and other industrial capital equipment markets. With a current stock price of $105.84 and a market cap of $4 billion, AEIS's stock gives every indication of being fairly valued.
Understanding the GF Value
The GF Value represents the current intrinsic value of a stock derived from our exclusive method. The GF Value Line on our summary page gives an overview of the fair value that the stock should be traded at. It is calculated based on three factors:
Historical multiples (PE Ratio, PS Ratio, PB Ratio and Price-to-Free-Cash-Flow) that the stock has traded at.
GuruFocus adjustment factor based on the company's past returns and growth.
Future estimates of the business performance.
Given its current price and market cap, Advanced Energy Industries' stock appears to be fairly valued. This suggests that the long-term return of its stock is likely to be close to the rate of its business growth.
Financial Strength of Advanced Energy Industries
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. Advanced Energy Industries has a cash-to-debt ratio of 0.98, which is worse than 54.85% of 2791 companies in the Industrial Products industry. GuruFocus ranks the overall financial strength of Advanced Energy Industries at 7 out of 10, which indicates that the financial strength of Advanced Energy Industries is fair.
Profitability and Growth
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. Advanced Energy Industries has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of $1.80 billion and Earnings Per Share (EPS) of $4.67. Its operating margin is 11.66%, which ranks better than 73.67% of 2799 companies in the Industrial Products industry. Overall, the profitability of Advanced Energy Industries is ranked 9 out of 10, which indicates strong profitability.
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 Advanced Energy Industries is 33.6%, which ranks better than 92.25% of 2672 companies in the Industrial Products industry. The 3-year average EBITDA growth is 53%, which ranks better than 91.75% of 2363 companies in the Industrial Products industry.
ROIC vs WACC
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average 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 return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, Advanced Energy Industries's ROIC is 14.96 while its WACC came in at 11.98.
In conclusion, the stock of Advanced Energy Industries (NASDAQ:AEIS) gives every indication of being fairly valued. The company's financial condition is fair and its profitability is strong. Its growth ranks better than 91.75% of 2363 companies in the Industrial Products industry. To learn more about Advanced Energy Industries stock, you can check out its 30-Year Financials here.
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This article first appeared on GuruFocus.