PGT Innovations (PGTI): A Hidden Gem in the Construction Industry
PGT Innovations Inc (NYSE:PGTI) experienced a daily loss of -8.87%, and a 3-month loss of -4.22%. With an Earnings Per Share (EPS) of 1.75, the question arises: Is the stock modestly undervalued? This article provides an in-depth analysis of PGT Innovations' valuation, offering valuable insights for potential investors. We encourage you to read on to understand the company's intrinsic value better.
Introduction to PGT Innovations
PGT Innovations Inc is a leading manufacturer of impact-resistant aluminum and vinyl-framed windows and doors. The company offers a broad range of fully customizable window and door products, distributing through multiple channels, including window distributors, building supply distributors, window replacement dealers, and enclosure contractors. The majority of its revenue is generated from Florida, although it also operates in the states of the Caribbean, Canada, and South and Central America. The company's current stock price is $25.9, while its GF Value, an estimation of fair value, stands at $28.79.
Understanding the GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. The GF Value Line provides an overview of the fair value that the stock should ideally be traded at, calculated based on historical multiples, a GuruFocus adjustment factor based on the company's past performance and growth, and future business performance estimates.
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. Currently, PGT Innovations (NYSE:PGTI) appears to be modestly undervalued according to GuruFocus' valuation method.
As PGT Innovations is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth.
These companies may deliver higher future returns at reduced risk.
Financial Strength of PGT Innovations
Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Therefore, it is crucial to carefully review the financial strength of a company before deciding whether to buy its stock. A great starting point for understanding the financial strength of a company is looking at the cash-to-debt ratio and interest coverage. PGT Innovations has a cash-to-debt ratio of 0.05, which is worse than 93.28% of 1608 companies in the Construction industry. GuruFocus ranks the overall financial strength of PGT Innovations at 5 out of 10, indicating that the financial strength of PGT Innovations is fair.
Profitability and Growth of PGT Innovations
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. PGT Innovations has been profitable 10 years over the past 10 years. During the past 12 months, the company had revenues of $1.50 billion and Earnings Per Share (EPS) of $1.75. Its operating margin of 12.14% is better than 81.63% of 1606 companies in the Construction industry. Overall, GuruFocus ranks PGT Innovations's profitability as strong.
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 PGT Innovations is 25.2%, which ranks better than 89.2% of 1547 companies in the Construction industry. The 3-year average EBITDA growth is 22.9%, which ranks better than 78.57% of 1316 companies in the Construction 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, PGT Innovations's return on invested capital is 9.98, and its cost of capital is 9.01.
Conclusion
In summary, the stock of PGT Innovations (NYSE:PGTI) appears to be modestly undervalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 78.57% of 1316 companies in the Construction industry. To learn more about PGT Innovations stock, you can check out its 30-Year Financials here.
To find out the high-quality companies that may deliver above-average returns, please check out GuruFocus High Quality Low Capex Screener.
This article first appeared on GuruFocus.
