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Qurate Retail Stock Is Believed To Be Fairly Valued

- By GF Value

The stock of Qurate Retail (NAS:QRTEA, 30-year Financials) shows every sign of being fairly valued, 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 $12.05 per share and the market cap of $5 billion, Qurate Retail stock appears to be fairly valued. GF Value for Qurate Retail is shown in the chart below.


Qurate Retail Stock Is Believed To Be Fairly Valued
Qurate Retail Stock Is Believed To Be Fairly Valued

Because Qurate Retail is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which averaged 13.2% over the past three years and is estimated to grow 1.03% annually over the next three to five years.

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

It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. Qurate Retail has a cash-to-debt ratio of 0.12, which is worse than 84% of the companies in the industry of Retail - Cyclical. The overall financial strength of Qurate Retail is 4 out of 10, which indicates that the financial strength of Qurate Retail is poor. This is the debt and cash of Qurate Retail over the past years:

Qurate Retail Stock Is Believed To Be Fairly Valued
Qurate Retail Stock Is Believed To Be Fairly Valued

It poses less risk to invest in profitable companies, especially those that 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. Qurate Retail has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of $14.2 billion and earnings of $2.86 a share. Its operating margin is 11.09%, which ranks better than 85% of the companies in the industry of Retail - Cyclical. Overall, GuruFocus ranks the profitability of Qurate Retail at 7 out of 10, which indicates fair profitability. This is the revenue and net income of Qurate Retail over the past years:

Qurate Retail Stock Is Believed To Be Fairly Valued
Qurate Retail Stock Is Believed To Be Fairly Valued

Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term stock performance of a company. A faster growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Qurate Retail is 13.2%, which ranks better than 83% of the companies in the industry of Retail - Cyclical. The 3-year average EBITDA growth rate is 0.3%, which ranks in the middle range of the companies in the industry of Retail - Cyclical.

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, Qurate Retail's ROIC was 13.18, while its WACC came in at 8.94. The historical ROIC vs WACC comparison of Qurate Retail is shown below:

Qurate Retail Stock Is Believed To Be Fairly Valued
Qurate Retail Stock Is Believed To Be Fairly Valued

Overall, The stock of Qurate Retail (NAS:QRTEA, 30-year Financials) shows every sign of being fairly valued. The company's financial condition is poor and its profitability is fair. Its growth ranks in the middle range of the companies in the industry of Retail - Cyclical. To learn more about Qurate Retail stock, you can check out its 30-year Financials here.

To find out the high quality companies that may deliever above average returns, please check out GuruFocus High Quality Low Capex Screener.

This article first appeared on GuruFocus.

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