Limbach Holdings Stock Appears To Be Significantly Overvalued
- By GF Value
The stock of Limbach Holdings (NAS:LMB, 30-year Financials) shows every sign of being 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 $10.99 per share and the market cap of $112.6 million, Limbach Holdings stock appears to be significantly overvalued. GF Value for Limbach Holdings is shown in the chart below.
Because Limbach Holdings is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 2.7% over the past five years.
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Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. Limbach Holdings has a cash-to-debt ratio of 0.68, which which ranks in the middle range of the companies in Construction industry. The overall financial strength of Limbach Holdings is 5 out of 10, which indicates that the financial strength of Limbach Holdings is fair. This is the debt and cash of Limbach Holdings over the past years:
It is less risky to invest in profitable companies, especially those with consistent profitability over long term. A company with high profit margins is usually a safer investment than those with low profit margins. Limbach Holdings has been profitable 3 over the past 10 years. Over the past twelve months, the company had a revenue of $568.2 million and earnings of $0.72 a share. Its operating margin is 3.02%, which ranks in the middle range of the companies in Construction industry. Overall, the profitability of Limbach Holdings is ranked 3 out of 10, which indicates poor profitability. This is the revenue and net income of Limbach Holdings 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 Limbach Holdings is 2.7%, which ranks in the middle range of the companies in Construction industry. The 3-year average EBITDA growth is 12.6%, which ranks better than 68% of the companies in Construction industry.
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted 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 is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Limbach Holdings's ROIC was 9.96, while its WACC came in at 9.75. The historical ROIC vs WACC comparison of Limbach Holdings is shown below:
In conclusion, the stock of Limbach Holdings (NAS:LMB, 30-year Financials) appears to be significantly overvalued. The company's financial condition is fair and its profitability is poor. Its growth ranks better than 68% of the companies in Construction industry. To learn more about Limbach Holdings stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.
