Hollysys Automation Technologies (HOLI): A Comprehensive Analysis of Its Market Value
With a daily gain of 5.07% and a three-month gain of 18.16%, Hollysys Automation Technologies Ltd (NASDAQ:HOLI) is making a significant impact on the market. The company also boasts an Earnings Per Share (EPS) of 1.73. But the question remains: is the stock fairly valued? This article provides an in-depth analysis of Hollysys Automation Technologies' valuation, offering insights that will help you make informed investment decisions.
Company Introduction
Hollysys Automation Technologies Ltd is a China-based company specializing in automation and control technologies and products. The company operates through three segments: IA, Rail, and M&E, generating most of its sales from the Chinese domestic market. With a stock price of $20.85 and a GF Value of $19.01, Hollysys Automation Technologies presents an interesting case for valuation analysis. This article provides a detailed exploration of the company's value, combining financial assessment with essential company details.
Understanding GF Value
The GF Value represents the current intrinsic value of a stock, derived from a unique method. It factors in historical multiples, a GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of the business performance. The GF Value Line on our summary page provides an overview of the fair value that the stock should ideally trade at.
Based on GuruFocus' valuation method, Hollysys Automation Technologies (NASDAQ:HOLI) is estimated to be fairly valued. The stock's fair value is determined by three key factors: historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. If the share price is significantly above the GF Value Line, the stock may be overvalued and have poor future returns. Conversely, if the share price is significantly below the GF Value Line, the stock may be undervalued and have higher future returns. At its current price of $20.85 per share, Hollysys Automation Technologies stock is estimated to be fairly valued.
Because Hollysys Automation Technologies is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth.
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Evaluating Financial Strength
It is always important to assess the financial strength of a company before investing in its stock. Companies with poor financial strength pose a higher risk of permanent loss. Key indicators of financial strength include the cash-to-debt ratio and interest coverage. Hollysys Automation Technologies has a cash-to-debt ratio of 18.43, which is better than 80.06% of 2839 companies in the Industrial Products industry. The overall financial strength of Hollysys Automation Technologies is 9 out of 10, indicating strong financial health.
Profitability and Growth
Investing in profitable companies, especially those demonstrating consistent profitability over the long term, poses less risk. Hollysys Automation Technologies has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $777.40 million and Earnings Per Share (EPS) of $1.73. Its operating margin is 11.96%, which ranks better than 73.94% of 2893 companies in the Industrial Products industry. Overall, GuruFocus ranks the profitability of Hollysys Automation Technologies at 8 out of 10, indicating strong profitability.
Growth is one of the most important factors in the valuation of a company. Hollysys Automation Technologies's 3-year average revenue growth rate is better than 71.73% of 2734 companies in the Industrial Products industry. However, its 3-year average EBITDA growth rate is 5.8%, which ranks worse than 57.11% of 2425 companies in the Industrial Products industry.
ROIC vs WACC
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average 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 exceeds the WACC, the company is likely creating value for its shareholders. During the past 12 months, Hollysys Automation Technologies's ROIC is 11.04 while its WACC came in at 7.12.
Conclusion
In conclusion, the stock of Hollysys Automation Technologies is estimated to be fairly valued. The company's financial condition is strong, and its profitability is robust. However, its growth ranks worse than 57.11% of 2425 companies in the Industrial Products industry. To learn more about Hollysys Automation Technologies stock, you can check out its 30-Year Financials here.
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This article first appeared on GuruFocus.
