Is Fleetcor Technologies Inc (FLT) Modestly Undervalued?
Fleetcor Technologies Inc (NYSE:FLT) has seen a daily gain of 2.11% and a 3-month gain of 10.89%. With an Earnings Per Share (EPS) (EPS) of 12.4, the question arises: is the stock modestly undervalued? This article aims to answer this question through a comprehensive valuation analysis. Let's delve into the details and financials of Fleetcor Technologies.
Company Overview
Fleetcor Technologies Inc is a leading provider of specialized payment products. The company's offerings include fleet cards, food cards, corporate lodging discount cards, and other specialized payment services. Fleetcor's systems empower its customers to manage and control their commercial payments and loyalty-card programs. Its client base comprises commercial fleet operators, major oil companies, petroleum marketers, and government entities. Moreover, Fleetcor offers customized analysis solutions, providing business productivity tracking capabilities. The United States represents the largest geographic operating segment for Fleetcor Technologies.
Comparing the stock price of Fleetcor Technologies Inc (NYSE:FLT) to its GF Value, a proprietary estimation of fair value, provides a deeper understanding of the company's intrinsic value. The following income breakdown further illustrates the financial performance of Fleetcor Technologies:
Understanding GF Value
The GF Value is an exclusive method of determining the current intrinsic value of a stock. The GF Value Line on our summary page provides an overview of the fair value at which the stock should ideally be traded. This calculation is based on three key factors:
Historical multiples (PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow) at which the stock has traded.
GuruFocus adjustment factor based on the company's past returns and growth.
Future estimates of the business performance.
Fleetcor Technologies (NYSE:FLT) appears to be modestly undervalued according to the GF Value. This valuation is based on historical multiples, an internal adjustment reflective of the company's past growth, and future business performance estimates. If the share price significantly exceeds the GF Value Line, the stock may be overvalued, leading to poor future returns. Conversely, if the share price is significantly below the GF Value, the stock may be undervalued, potentially yielding higher future returns. Currently priced at $263.51 per share, Fleetcor Technologies stock appears to be modestly undervalued.
Given this undervaluation, Fleetcor Technologies' long-term stock return is likely to exceed its business growth.
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Financial Strength
Companies with poor financial strength pose a high risk of permanent capital loss to investors. To avoid this, investors must research and review a company's financial strength before purchasing shares. The cash-to-debt ratio and interest coverage of a company offer a great way to understand its financial strength. Fleetcor Technologies has a cash-to-debt ratio of 0.19, ranking worse than 87.85% of 2750 companies in the Software industry. The overall financial strength of Fleetcor Technologies is 5 out of 10, indicating fair financial strength.
This is the debt and cash of Fleetcor Technologies over the past years:
Profitability and Growth
Investing in profitable companies, especially those demonstrating consistent long-term profitability, poses less risk. A company with high profit margins is typically a safer investment than one with low profit margins. Fleetcor Technologies has been profitable for 10 out of the past 10 years. Over the past twelve months, the company had a revenue of $3.60 billion and an EPS of $12.4. Its operating margin is 42.64%, ranking better than 98.2% of 2720 companies in the Software industry. Overall, GuruFocus ranks the profitability of Fleetcor Technologies at 9 out of 10, indicating strong profitability.
Growth is probably one of the most important factors in the valuation of a company. If a company's business is growing, it usually creates value for its shareholders, especially if the growth is profitable. Conversely, if a company's revenue and earnings are declining, the value of the company will decrease. Fleetcor Technologies' 3-year average revenue growth rate is better than 65.13% of 2389 companies in the Software industry. Its 3-year average EBITDA growth rate is 11.2%, ranking better than 52.96% of 1990 companies in the Software industry.
ROIC vs WACC
A company's profitability can also be evaluated by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. 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 exceeds the WACC, the company is likely creating value for its shareholders. Over the past 12 months, Fleetcor Technologies' ROIC was 9.31 while its WACC was 7.97.
The historical ROIC vs WACC comparison of Fleetcor Technologies is shown below:
Conclusion
In conclusion, the stock of Fleetcor Technologies (NYSE:FLT) appears to be modestly undervalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 52.96% of 1990 companies in the Software industry. To learn more about Fleetcor Technologies stock, you can check out its 30-Year Financials here.
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This article first appeared on GuruFocus.
