Unlocking Scholastic (SCHL)'s True Worth: Is It Modestly Undervalued?
With a daily loss of -11.86% and a 3-month loss of -12.92%, Scholastic Corp (NASDAQ:SCHL) is currently trading at $34.33 per share. The company's Earnings Per Share (EPS) (EPS) stands at 2.48. Despite these figures, the question arises: is Scholastic (NASDAQ:SCHL) modestly undervalued? This article will delve into the company's valuation analysis to answer this question.
Company Overview
As a prominent American publishing and education media company, Scholastic Corp (NASDAQ:SCHL) focuses on books and educational material for schools, teachers, parents, and children. The company is one of the world's largest publishers of children's books and holds exclusive rights to various books, including Harry Potter and The Hunger Games. Scholastic's original titles include Clifford the Big Red Dog, Goosebumps, and The Magic School Bus. The company operates through three segments: Children's Book Publishing and Distribution, Education Solutions, and International, with the majority of its revenue coming from the Children's Book Publishing and Distribution segment.
Understanding GF Value
The GF Value is an exclusive method of determining a stock's intrinsic value. This value is calculated based on historical multiples, a GuruFocus adjustment factor, 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, Scholastic (NASDAQ:SCHL) appears to be modestly undervalued according to the GF Value calculation. With a market cap of $1.10 billion, the stock's current price of $34.33 per share suggests that it is modestly undervalued. This implies that the long-term return of Scholastic's stock is likely to be higher than its business growth.
Link: These companies may deliver higher future returns at reduced risk.
Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's crucial to review a company's financial strength before deciding to buy shares. Scholastic has a cash-to-debt ratio of 2.22, ranking better than 59.36% of 1004 companies in the Media - Diversified industry. Based on this, GuruFocus ranks Scholastic's financial strength as 7 out of 10, indicating a fair balance sheet.
Profitability and Growth
Profitable companies, especially those with consistent profitability over the long term, are less risky investments. Scholastic has been profitable for 7 of the past 10 years. Over the past twelve months, the company had a revenue of $1.70 billion and an Earnings Per Share (EPS) (EPS) of $2.48. Its operating margin is 6.24%, which ranks better than 59.15% of 1038 companies in the Media - Diversified industry. Overall, Scholastic's profitability is ranked 6 out of 10, indicating fair profitability.
Growth is a crucial factor in a company's valuation. Scholastic's 3-year average revenue growth rate is better than 63.25% of 955 companies in the Media - Diversified industry. However, its 3-year average EBITDA growth rate is 0%, ranking worse than 0% of 771 companies in the same industry.
Return on Invested Capital vs. Weighted Average Cost of Capital
Comparing a company's Return on Invested Capital (ROIC) with its Weighted Average Cost of Capital (WACC) can provide insights into its profitability. For the past 12 months, Scholastic's ROIC is 6.54, and its WACC is 11.28, indicating that the company is not generating enough returns to cover its cost of capital.
Conclusion
In conclusion, Scholastic (NASDAQ:SCHL) appears to be modestly undervalued. The company's financial condition and profitability are fair, but its growth ranks worse than 0% of 771 companies in the Media - Diversified industry. To learn more about Scholastic's stock, you can check out its 30-Year Financials here.
To find high-quality companies that may deliver above-average returns, check out the GuruFocus High Quality Low Capex Screener.
This article first appeared on GuruFocus.
