- By GF Value
The stock of LCI Industries (NYSE:LCII, 30-year Financials) appears to be modestly 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 $151.75 per share and the market cap of $3.8 billion, LCI Industries stock appears to be modestly overvalued. GF Value for LCI Industries is shown in the chart below.
Because LCI Industries is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth, which averaged 9.4% over the past five years.
Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Thus, it is important to carefully review the financial strength of a company before deciding whether to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company. LCI Industries has a cash-to-debt ratio of 0.07, which is in the bottom 10% of the companies in Vehicles & Parts industry. GuruFocus ranks the overall financial strength of LCI Industries at 5 out of 10, which indicates that the financial strength of LCI Industries is fair. This is the debt and cash of LCI Industries over the past years:
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. LCI Industries has been profitable 10 years over the past 10 years. During the past 12 months, the company had revenues of $3.1 billion and earnings of $8.07 a share. Its operating margin of 8.93% better than 75% of the companies in Vehicles & Parts industry. Overall, GuruFocus ranks LCI Industries's profitability as strong. This is the revenue and net income of LCI Industries over the past years:
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of LCI Industries is 9.4%, which ranks better than 82% of the companies in Vehicles & Parts industry. The 3-year average EBITDA growth is 6.2%, which ranks better than 68% of the companies in Vehicles & Parts industry.
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 return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, LCI Industries's ROIC is 11.19 while its WACC came in at 10.12. The historical ROIC vs WACC comparison of LCI Industries is shown below:
In summary, LCI Industries (NYSE:LCII, 30-year Financials) stock gives every indication of being modestly overvalued. The company's financial condition is fair and its profitability is strong. Its growth ranks better than 68% of the companies in Vehicles & Parts industry. To learn more about LCI Industries stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.