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Deluxe Stock Shows Every Sign Of Being Fairly Valued

·4 min read

- By GF Value

The stock of Deluxe (NYSE:DLX, 30-year Financials) shows every sign of being fairly valued, 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 $43.23 per share and the market cap of $1.8 billion, Deluxe stock shows every sign of being fairly valued. GF Value for Deluxe is shown in the chart below.


Deluxe Stock Shows Every Sign Of Being Fairly Valued
Deluxe Stock Shows Every Sign Of Being Fairly Valued

Because Deluxe is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which averaged 1.6% over the past five years.

Link: These companies may deliever higher future returns at reduced risk.

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. Deluxe has a cash-to-debt ratio of 0.14, which ranks worse than 84% of the companies in the industry of Media - Diversified. Based on this, GuruFocus ranks Deluxe's financial strength as 5 out of 10, suggesting fair balance sheet. This is the debt and cash of Deluxe over the past years:

Deluxe Stock Shows Every Sign Of Being Fairly Valued
Deluxe Stock Shows Every Sign Of Being Fairly Valued

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. Deluxe has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of $1.7 billion and earnings of $2.2 a share. Its operating margin is 12.69%, which ranks better than 78% of the companies in the industry of Media - Diversified. Overall, the profitability of Deluxe is ranked 7 out of 10, which indicates fair profitability. This is the revenue and net income of Deluxe over the past years:

Deluxe Stock Shows Every Sign Of Being Fairly Valued
Deluxe Stock Shows Every Sign Of Being Fairly Valued

Growth is probably one of the most important factors in the valuation of a company. GuruFocus' research has found that growth is closely correlated with the long-term performance of a company's stock. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. Deluxe's 3-year average revenue growth rate is in the middle range of the companies in the industry of Media - Diversified. Deluxe's 3-year average EBITDA growth rate is -25.5%, which ranks worse than 80% of the companies in the industry of Media - Diversified.

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, Deluxe's ROIC was 10.54, while its WACC came in at 8.99.

In closing, The stock of Deluxe (NYSE:DLX, 30-year Financials) is estimated to be fairly valued. The company's financial condition is fair and its profitability is fair. Its growth ranks worse than 80% of the companies in the industry of Media - Diversified. To learn more about Deluxe stock, you can check out its 30-year Financials here.

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This article first appeared on GuruFocus.