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Ossen Innovation Co Stock Is Estimated To Be Significantly Overvalued

·4 min read

- By GF Value

The stock of Ossen Innovation Co (NAS:OSN, 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 $4.56 per share and the market cap of $30.1 million, Ossen Innovation Co stock gives every indication of being significantly overvalued. GF Value for Ossen Innovation Co is shown in the chart below.


Ossen Innovation Co Stock Is Estimated To Be Significantly Overvalued
Ossen Innovation Co Stock Is Estimated To Be Significantly Overvalued

Because Ossen Innovation Co is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 1.5% over the past five years.

Link: These companies may deliever higher future returns at reduced risk.

Since investing in companies with low financial strength could result in permanent capital loss, investors must carefully review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. Ossen Innovation Co has a cash-to-debt ratio of 0.04, which ranks worse than 88% of the companies in Steel industry. Based on this, GuruFocus ranks Ossen Innovation Co's financial strength as 5 out of 10, suggesting fair balance sheet. This is the debt and cash of Ossen Innovation Co over the past years:

Ossen Innovation Co Stock Is Estimated To Be Significantly Overvalued
Ossen Innovation Co Stock Is Estimated To Be Significantly Overvalued

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. Ossen Innovation Co has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $138.6 million and earnings of $1.68 a share. Its operating margin is 11.82%, which ranks better than 85% of the companies in Steel industry. Overall, the profitability of Ossen Innovation Co is ranked 7 out of 10, which indicates fair profitability. This is the revenue and net income of Ossen Innovation Co over the past years:

Ossen Innovation Co Stock Is Estimated To Be Significantly Overvalued
Ossen Innovation Co Stock Is Estimated To Be Significantly Overvalued

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 Ossen Innovation Co is 1.5%, which ranks in the middle range of the companies in Steel industry. The 3-year average EBITDA growth is 23.5%, which ranks better than 82% of the companies in Steel industry.

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, Ossen Innovation Co's return on invested capital is 8.12, and its cost of capital is 5.87. The historical ROIC vs WACC comparison of Ossen Innovation Co is shown below:

Ossen Innovation Co Stock Is Estimated To Be Significantly Overvalued
Ossen Innovation Co Stock Is Estimated To Be Significantly Overvalued

In summary, Ossen Innovation Co (NAS:OSN, 30-year Financials) stock gives every indication of being significantly overvalued. The company's financial condition is fair and its profitability is fair. Its growth ranks better than 82% of the companies in Steel industry. To learn more about Ossen Innovation Co stock, you can check out its 30-year Financials here.

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This article first appeared on GuruFocus.