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Enova International Stock Appears To Be Significantly Overvalued

GuruFocus.com
·4 min read

- By GF Value

The stock of Enova International (NYSE:ENVA, 30-year Financials) is estimated 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 $35.55 per share and the market cap of $1.3 billion, Enova International stock gives every indication of being significantly overvalued. GF Value for Enova International is shown in the chart below.


Enova International Stock Appears To Be Significantly Overvalued
Enova International Stock Appears To Be Significantly Overvalued

Because Enova International is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 16.3% over the past three years and is estimated to grow 4.07% annually over the next three to 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. Enova International has a cash-to-debt ratio of 0.29, which ranks in the middle range of the companies in Credit Services industry. Based on this, GuruFocus ranks Enova International's financial strength as 5 out of 10, suggesting fair balance sheet. This is the debt and cash of Enova International over the past years:

Enova International Stock Appears To Be Significantly Overvalued
Enova International Stock Appears To Be Significantly Overvalued

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. Enova International has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $1.1 billion and earnings of $11.31 a share. Its operating margin is 33.02%, which ranks in the middle range of the companies in Credit Services industry. Overall, GuruFocus ranks the profitability of Enova International at 9 out of 10, which indicates strong profitability. This is the revenue and net income of Enova International over the past years:

Enova International Stock Appears To Be Significantly Overvalued
Enova International Stock Appears To Be Significantly 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 Enova International is 16.3%, which ranks better than 70% of the companies in Credit Services industry. The 3-year average EBITDA growth rate is 74.9%, which ranks better than 91% of the companies in Credit Services 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, Enova International's ROIC was 22.54, while its WACC came in at 10.47. The historical ROIC vs WACC comparison of Enova International is shown below:

Enova International Stock Appears To Be Significantly Overvalued
Enova International Stock Appears To Be Significantly Overvalued

In conclusion, the stock of Enova International (NYSE:ENVA, 30-year Financials) is estimated to be significantly overvalued. The company's financial condition is fair and its profitability is strong. Its growth ranks better than 91% of the companies in Credit Services industry. To learn more about Enova International stock, you can check out its 30-year Financials here.

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This article first appeared on GuruFocus.