Corning Stock Is Estimated To Be Modestly Overvalued

·4 min read

- By GF Value

The stock of Corning (NYSE:GLW, 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 $42.85 per share and the market cap of $36.5 billion, Corning stock is estimated to be modestly overvalued. GF Value for Corning is shown in the chart below.


Corning Stock Is Estimated To Be Modestly Overvalued
Corning Stock Is Estimated To Be Modestly Overvalued

Because Corning is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth, which averaged 9% over the past three years and is estimated to grow 7.73% annually over the next three to five years.

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Since investing in companies with low financial strength could result in permanent capital loss, investors must carefully review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. Corning has a cash-to-debt ratio of 0.34, which ranks worse than 83% of the companies in Hardware industry. Based on this, GuruFocus ranks Corning's financial strength as 5 out of 10, suggesting fair balance sheet. This is the debt and cash of Corning over the past years:

Corning Stock Is Estimated To Be Modestly Overvalued
Corning Stock Is Estimated To Be Modestly Overvalued

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. Corning has been profitable 9 years over the past 10 years. During the past 12 months, the company had revenues of $12.2 billion and earnings of $1.3 a share. Its operating margin of 9.28% better than 72% of the companies in Hardware industry. Overall, GuruFocus ranks Corning's profitability as fair. This is the revenue and net income of Corning over the past years:

Corning Stock Is Estimated To Be Modestly Overvalued
Corning Stock Is Estimated To Be Modestly Overvalued

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 Corning is 9%, which ranks better than 75% of the companies in Hardware industry. The 3-year average EBITDA growth rate is -1.9%, which ranks in the middle range of the companies in Hardware industry.

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, Corning's ROIC is 3.51 while its WACC came in at 7.52. The historical ROIC vs WACC comparison of Corning is shown below:

Corning Stock Is Estimated To Be Modestly Overvalued
Corning Stock Is Estimated To Be Modestly Overvalued

Overall, The stock of Corning (NYSE:GLW, 30-year Financials) gives every indication of being modestly overvalued. The company's financial condition is fair and its profitability is fair. Its growth ranks in the middle range of the companies in Hardware industry. To learn more about Corning stock, you can check out its 30-year Financials here.

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This article first appeared on GuruFocus.