Old Dominion Freight Line (ODFL): A Comprehensive Analysis of Its Market Value
Old Dominion Freight Line Inc (NASDAQ:ODFL) experienced a daily gain of 3.91% and a three-month gain of 7.45%. The company's Earnings Per Share (EPS) stands at 11.51. The question that arises here is: Is the stock modestly overvalued? To answer this, we need to delve into a detailed valuation analysis. So, let's get started.
Company Introduction
Old Dominion Freight Line is the second-largest less than truckload carrier in the United States. With over 250 service centers and 11,000-plus tractors, the company has distinguished itself as one of the most disciplined and efficient providers in the trucking industry. Its profitability and capital returns stand head and shoulders above its peers. Strategic initiatives revolve around increasing network density through market share gains and maintaining industry-leading service via steadfast infrastructure investment.
Comparing the stock price of $420.93 per share and the GF Value of $331.51, it appears that Old Dominion Freight Line is modestly overvalued. But to get a more profound exploration of the company's value, let's integrate this financial assessment with essential company details.
Summarizing GF Value
The GF Value is a unique measure that represents the current intrinsic value of a stock. This value is calculated based on three key factors: historical multiples that the stock has traded at, a GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of business performance.
The GF Value Line on our summary page provides an overview of the fair value at which the stock should be traded. 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.
Given these parameters, Old Dominion Freight Line, with a market cap of $46 billion, appears to be modestly overvalued. As a result, the long-term return of its stock is likely to be lower than its business growth.
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Financial Strength
Companies with poor financial strength pose a high risk of permanent capital loss to investors. To avoid this, it's crucial 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 indicators of its financial strength. Old Dominion Freight Line has a cash-to-debt ratio of 0.69, which ranks better than 59.75% of 944 companies in the Transportation industry. The overall financial strength of Old Dominion Freight Line is 9 out of 10, indicating that its financial strength is strong.
Profitability and Growth
Investing in profitable companies poses less risk, especially if they have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. Old Dominion Freight Line has been profitable 10 times over the past 10 years. Over the past twelve months, the company had a revenue of $6 billion and Earnings Per Share (EPS) of $11.51. Its operating margin is 28.58%, which ranks better than 87.11% of 954 companies in the Transportation industry. Overall, GuruFocus ranks the profitability of Old Dominion Freight Line at 10 out of 10, indicating strong profitability.
One of the most important factors in the valuation of a company is its growth. Long-term stock performance is closely correlated with growth. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Old Dominion Freight Line is 17.6%, which ranks better than 76.75% of 916 companies in the Transportation industry. The 3-year average EBITDA growth is 28%, which ranks better than 73.36% 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, Old Dominion Freight Line's return on invested capital is 29.54, and its cost of capital is 11.97.
Conclusion
In conclusion, the stock of Old Dominion Freight Line appears to be modestly overvalued. The company's financial condition is strong and its profitability is strong. Its growth ranks better than 73.36% of 822 companies in the Transportation industry. To learn more about Old Dominion Freight Line 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.
