Textainer Group Holdings Ltd (NYSE:TGH) recently reported a daily gain of 44.16%, with a 3-month gain of 21.98%. Its Earnings Per Share (EPS) stand at 5.44. Despite these encouraging numbers, the question remains: is the stock modestly overvalued? In this article, we delve into the valuation analysis of Textainer Group Holdings, providing you with valuable insights to inform your investment decisions.
Textainer Group Holdings Ltd is an intermodal container leasing company, serving customers globally, including international shipping lines and other lessees. The company operates in three segments: Container Ownership, Container Management, and Container Resale. It generates most of its revenue from lease rental income. The company's stock is currently priced at $49.23 per share, compared to its GF Value of $38.82, suggesting that it may be modestly overvalued.
Understanding GF Value
The GF Value is a proprietary measure of a stock's intrinsic value, computed based on historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line represents the fair value at which the stock should ideally trade. If the stock price significantly exceeds the GF Value Line, it is likely overvalued and may offer poor future returns. Conversely, if it is significantly below the GF Value Line, it may be undervalued and could provide higher future returns.
Given its current price of $49.23 per share, Textainer Group Holdings (NYSE:TGH) appears to be modestly overvalued. As such, the long-term return of its stock is likely to be lower than its business growth.
Investing in companies with poor financial strength carries a higher risk of permanent loss of capital. Therefore, it's essential to scrutinize a company's financial strength before deciding to buy its stock. Textainer Group Holdings has a cash-to-debt ratio of 0.03, which is worse than 94.08% of companies in the Business Services industry, indicating weak financial strength.
Profitability and Growth
Investing in profitable companies, especially those that have demonstrated consistent profitability over the long term, typically poses less risk. Textainer Group Holdings has been profitable for 9 out of the past 10 years, with an operating margin of 30.33%, ranking better than 93.47% of companies in the Business Services industry. This indicates strong profitability.
Growth is a critical factor in a company's valuation. The 3-year average annual revenue growth rate of Textainer Group Holdings is 16.1%, which ranks better than 79.34% of companies in the Business Services industry.
ROIC vs WACC
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). Textainer Group Holdings' ROIC was 3.44 over the past 12 months, while its WACC was 4.9, indicating that the company is not creating value for shareholders.
In conclusion, Textainer Group Holdings (NYSE:TGH) appears to be modestly overvalued. While its profitability is strong, its financial condition is weak. Its growth ranks better than 78.96% of companies in the Business Services industry. To learn more about Textainer Group Holdings 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.