Is Fleetcor Technologies Modestly Undervalued?: A Comprehensive Valuation Analysis
Fleetcor Technologies (NYSE:FLT), a specialized payment products provider, has seen a daily gain of 4.07% and a three-month gain of 18.79%. With an Earnings Per Share (EPS) (EPS) of 12.4, it begs the question: Is the stock modestly undervalued? This article aims to answer that question by delving into a comprehensive valuation analysis of Fleetcor Technologies. So, let's get started.
Company Introduction
Fleetcor Technologies Inc (NYSE:FLT) is a leading provider of specialized payment products. The company offers a wide range of services, including fleet cards, food cards, corporate lodging discount cards, and other specialized payment services. Fleetcor's systems enable its customers to manage and control their commercial payments and loyalty-card programs. With customers ranging from commercial fleet operators to major oil companies, petroleum marketers, and government entities, Fleetcor also offers customized analysis solutions, providing business productivity tracking capabilities. The United States is the largest geographic operating segment for Fleetcor Technologies.
Comparing the stock's price of $270.62 with its GF Value of $356.61, an estimation of fair value, it appears that Fleetcor Technologies may be modestly undervalued. Let's delve deeper into this analysis.
Understanding GF Value
The GF Value is a unique measure of a stock's intrinsic value, calculated based on three key factors: historical multiples that the stock has traded at, a GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of business performance.
According to this method, Fleetcor Technologies appears to be modestly undervalued. The GF Value Line, which represents the fair value at which the stock should trade, suggests that if the stock's price is significantly above this line, the stock may be overvalued and its future returns could be poor. Conversely, if the stock's price is significantly below the GF Value Line, the stock may be undervalued and could offer high future returns.
Given that Fleetcor Technologies is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth.
Fleetcor Technologies' Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Hence, it's crucial to review a company's financial strength before deciding 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. Fleetcor Technologies has a cash-to-debt ratio of 0.19, which ranks worse than 88.27% of companies in the Software industry. Based on this, GuruFocus ranks Fleetcor Technologies's financial strength as 5 out of 10, suggesting a fair balance sheet.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is generally less risky. Fleetcor Technologies has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $3.60 billion and Earnings Per Share (EPS) of $12.4. Its operating margin is 42.5%, which ranks better than 98.27% of companies in the Software industry. Overall, the profitability of Fleetcor Technologies is ranked 9 out of 10, indicating strong profitability.
Growth is one of the most important factors in the valuation of a company. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Fleetcor Technologies's 3-year average revenue growth rate is better than 65.07% of companies in the Software industry. Fleetcor Technologies's 3-year average EBITDA growth rate is 11.2%, which ranks better than 52.99% of companies in the Software industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted cost of capital (WACC) is another way to evaluate its profitability. 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, Fleetcor Technologies's ROIC was 9.28, while its WACC came in at 7.7.
Conclusion
In conclusion, the stock of Fleetcor Technologies (NYSE:FLT) gives every indication of being modestly undervalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 52.99% of 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.
