CarParts.com Stock Appears To Be Significantly Overvalued
- By GF Value
The stock of CarParts.com (NAS:PRTS, 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 $16.315 per share and the market cap of $784.6 million, CarParts.com stock gives every indication of being significantly overvalued. GF Value for CarParts.com is shown in the chart below.
Because CarParts.com is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 11.1% over the past three years and is estimated to grow 17.90% annually over the next three to five years.
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It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. CarParts.com has a cash-to-debt ratio of 1.43, which is better than 70% of the companies in the industry of Retail - Cyclical. The overall financial strength of CarParts.com is 6 out of 10, which indicates that the financial strength of CarParts.com is fair. This is the debt and cash of CarParts.com over the past years:
It poses less risk to invest in profitable companies, especially those that have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. CarParts.com has been profitable 1 over the past 10 years. Over the past twelve months, the company had a revenue of $500.9 million and loss of $0.09 a share. Its operating margin is -0.37%, which ranks worse than 67% of the companies in the industry of Retail - Cyclical. Overall, GuruFocus ranks the profitability of CarParts.com at 2 out of 10, which indicates poor profitability. This is the revenue and net income of CarParts.com 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 CarParts.com is 11.1%, which ranks better than 81% of the companies in the industry of Retail - Cyclical. The 3-year average EBITDA growth rate is -12.2%, which ranks worse than 76% of the companies in the industry of Retail - Cyclical.
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, CarParts.com's ROIC was -3.32, while its WACC came in at 18.53. The historical ROIC vs WACC comparison of CarParts.com is shown below:
To conclude, CarParts.com (NAS:PRTS, 30-year Financials) stock shows every sign of being significantly overvalued. The company's financial condition is fair and its profitability is poor. Its growth ranks worse than 76% of the companies in the industry of Retail - Cyclical. To learn more about CarParts.com stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.
