Ingles Markets Stock Shows Every Sign Of Being Significantly Overvalued
- By GF Value
The stock of Ingles Markets (NAS:IMKTA, 30-year Financials) appears 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 $62.33 per share and the market cap of $1.3 billion, Ingles Markets stock appears to be significantly overvalued. GF Value for Ingles Markets is shown in the chart below.
Because Ingles Markets is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 4.8% over the past three years and is estimated to grow 2.75% annually over the next three to five years.
Link: These companies may deliever higher future returns at reduced risk.
It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. Ingles Markets has a cash-to-debt ratio of 0.02, which is in the bottom 10% of the companies in the industry of Retail - Defensive. The overall financial strength of Ingles Markets is 5 out of 10, which indicates that the financial strength of Ingles Markets is fair. This is the debt and cash of Ingles Markets over the past years:
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Ingles Markets has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $4.7 billion and earnings of $10.61 a share. Its operating margin is 6.71%, which ranks better than 82% of the companies in the industry of Retail - Defensive. Overall, the profitability of Ingles Markets is ranked 8 out of 10, which indicates strong profitability. This is the revenue and net income of Ingles Markets over the past years:
Growth is probably one of the most important factors in the valuation of a company. GuruFocus' research has found that growth is closely correlated with the long-term performance of a company's stock. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. Ingles Markets's 3-year average revenue growth rate is in the middle range of the companies in the industry of Retail - Defensive. Ingles Markets's 3-year average EBITDA growth rate is 17.3%, which ranks better than 67% of the companies in the industry of Retail - Defensive.
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average 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. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Ingles Markets's return on invested capital is 14.84, and its cost of capital is 4.34. The historical ROIC vs WACC comparison of Ingles Markets is shown below:
To conclude, The stock of Ingles Markets (NAS:IMKTA, 30-year Financials) appears to be significantly overvalued. The company's financial condition is fair and its profitability is strong. Its growth ranks better than 67% of the companies in the industry of Retail - Defensive. To learn more about Ingles Markets stock, you can check out its 30-year Financials here.
To find out the high quality companies that may deliever above average returns, please check out GuruFocus High Quality Low Capex Screener.
This article first appeared on GuruFocus.
