- By GF Value
The stock of Terminix Global Holdings (NYSE:TMX, 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 $50.46 per share and the market cap of $6.5 billion, Terminix Global Holdings stock gives every indication of being fairly valued. GF Value for Terminix Global Holdings is shown in the chart below.
Because Terminix Global Holdings is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which averaged 4.4% over the past three years and is estimated to grow 4.84% annually over the next three to five years.
Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Thus, it is important to carefully review the financial strength of a company before deciding whether to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company. Terminix Global Holdings has a cash-to-debt ratio of 0.47, which is in the middle range of the companies in Personal Services industry. GuruFocus ranks the overall financial strength of Terminix Global Holdings at 5 out of 10, which indicates that the financial strength of Terminix Global Holdings is fair. This is the debt and cash of Terminix Global Holdings over the past years:
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Terminix Global Holdings has been profitable 6 over the past 10 years. Over the past twelve months, the company had a revenue of $2 billion and earnings of $4.25 a share. Its operating margin is 11.99%, which ranks better than 71% of the companies in Personal Services industry. Overall, the profitability of Terminix Global Holdings is ranked 5 out of 10, which indicates fair profitability. This is the revenue and net income of Terminix Global Holdings over the past years:
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 performance of a company's stock. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Terminix Global Holdings is 4.4%, which ranks in the middle range of the companies in Personal Services industry. The 3-year average EBITDA growth rate is -8.6%, which ranks worse than 71% of the companies in Personal Services 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, Terminix Global Holdings's return on invested capital is 2.87, and its cost of capital is 5.87. The historical ROIC vs WACC comparison of Terminix Global Holdings is shown below:
In conclusion, The stock of Terminix Global Holdings (NYSE:TMX, 30-year Financials) is believed to be fairly valued. The company's financial condition is fair and its profitability is fair. Its growth ranks worse than 71% of the companies in Personal Services industry. To learn more about Terminix Global Holdings stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.