Greenbrier (GBX): A Closer Look at Its Modest Undervaluation
Greenbrier Companies Inc (NYSE:GBX) experienced a daily gain of 5.09%, despite a 3-month loss of 7.88%. The Earnings Per Share (EPS) stand at 1.71. Is the stock modestly undervalued? This article presents an in-depth analysis of Greenbrier's valuation, encouraging readers to delve into the financials of this intriguing company.
Company Introduction
Greenbrier Companies Inc designs, manufactures, and markets railroad freight car equipment in North America and Europe. It also provides wheel services, railcar refurbishment, and parts, leasing, and other services to the railroad industry. The company's segments include Manufacturing, Wheels, Repair and Parts, and Leasing and Services. Greenbrier generates the majority of its revenue from the manufacturing segment, primarily in the United States. Comparing the stock price of $42.45 to the GF Value of $51.27, the company appears to be modestly undervalued.
Understanding GF Value
The GF Value is a proprietary measure that presents the current intrinsic value of a stock. It is based on historical multiples, a GuruFocus adjustment factor, and future business performance estimates. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
Greenbrier (NYSE:GBX) appears to be modestly undervalued based on the GF Value. The stock's fair value is estimated considering historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. Given the current price of $42.45 per share, Greenbrier stock appears to be modestly undervalued. Consequently, the long-term return of its stock is likely to be higher than its business growth.
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Financial Strength
Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid this, it's essential to review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are great ways to understand its financial strength. Greenbrier has a cash-to-debt ratio of 0.19, which ranks worse than 72.03% of 944 companies in the Transportation industry. The overall financial strength of Greenbrier is 5 out of 10, indicating that the financial strength of Greenbrier is fair.
Profitability and Growth
Investing in profitable companies carries less risk, especially those that have demonstrated consistent profitability over the long term. Greenbrier has been profitable 9 years over the past 10 years. Its operating margin of 5.09% is worse than 62.05% of 954 companies in the Transportation industry. Overall, GuruFocus ranks Greenbrier's profitability as fair.
One of the most important factors in the valuation of a company is growth. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Greenbrier is -1.1%, which ranks worse than 64.52% of 916 companies in the Transportation industry. The 3-year average EBITDA growth is -7.2%, which ranks worse than 77.62% of 822 companies in the Transportation industry.
ROIC vs WACC
Another way to look at the profitability of a company is to compare its return on invested capital and the weighted cost of capital. 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. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, Greenbrier's return on invested capital is 4.97, and its cost of capital is 7.01.
Conclusion
In conclusion, the stock of Greenbrier (NYSE:GBX) gives every indication of being modestly undervalued. The company's financial condition is fair, and its profitability is fair. Its growth ranks worse than 77.62% of 822 companies in the Transportation industry. To learn more about Greenbrier stock, you can check out its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
This article first appeared on GuruFocus.
