Chase Stock Gives Every Indication Of Being Modestly Overvalued
- By GF Value
The stock of Chase (AMEX:CCF, 30-year Financials) shows every sign 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 $117.28 per share and the market cap of $1.1 billion, Chase stock shows every sign of being modestly overvalued. GF Value for Chase is shown in the chart below.
Because Chase is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth, which averaged 0.8% over the past 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. Chase has a cash-to-debt ratio of 14.01, which is better than 82% of the companies in Chemicals industry. The overall financial strength of Chase is 8 out of 10, which indicates that the financial strength of Chase is strong. This is the debt and cash of Chase over the past years:
It is less risky to invest in profitable companies, especially those with consistent profitability over long term. A company with high profit margins is usually a safer investment than those with low profit margins. Chase has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $261.5 million and earnings of $3.96 a share. Its operating margin is 18.70%, which ranks better than 86% of the companies in Chemicals industry. Overall, the profitability of Chase is ranked 7 out of 10, which indicates fair profitability. This is the revenue and net income of Chase 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 Chase is 0.8%, which ranks in the middle range of the companies in Chemicals industry. The 3-year average EBITDA growth rate is -7.3%, which ranks worse than 74% of the companies in Chemicals 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, Chase's ROIC was 16.15, while its WACC came in at 5.93. The historical ROIC vs WACC comparison of Chase is shown below:
In conclusion, The stock of Chase (AMEX:CCF, 30-year Financials) is believed to be modestly overvalued. The company's financial condition is strong and its profitability is fair. Its growth ranks worse than 74% of the companies in Chemicals industry. To learn more about Chase stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.
