Unveiling ASGN (ASGN)'s Value: Is It Really Priced Right? A Comprehensive Guide
ASGN Inc (NYSE:ASGN) experienced a daily gain of 5.01%, and a three-month gain of 11.49%. With an Earnings Per Share (EPS) of 4.75, the question arises: is the stock significantly undervalued? This article delves into a comprehensive valuation analysis of ASGN, providing insights into its financial health, profitability, and growth. Read on to discover if ASGN is a hidden gem in your investment portfolio.
A Snapshot of ASGN Inc (NYSE:ASGN)
ASGN Inc is a leading provider of information technology (IT) services and professional solutions, including technology, creative, and digital services across commercial and government sectors. It operates through two segments: Commercial and Federal Government. The Commercial Segment provides consulting, creative digital marketing, and permanent placement services to Fortune 1000 clients and mid-market companies. The Federal Government Segment offers mission-critical solutions to the Department of Defense, intelligence agencies, and civilian agencies. With a market cap of $3.90 billion, ASGN's current stock price is $81.59, significantly lower than its GF Value of $120.29, indicating potential undervaluation.
The GF Value of ASGN (NYSE:ASGN)
The GF Value is a unique measure of a stock's intrinsic value, calculated considering historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line represents the stock's ideal fair trading value. If the stock price 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.
ASGN (NYSE:ASGN) appears to be significantly undervalued based on GuruFocus' valuation method. At its current price of $81.59 per share, ASGN stock seems to offer a promising investment opportunity. As ASGN is significantly undervalued, the long-term return of its stock is likely to be much higher than its business growth.
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ASGN's Financial Strength
Investing in companies with poor financial strength can lead to a higher risk of permanent loss. A good way to understand a company's financial strength is by looking at its cash-to-debt ratio and interest coverage. ASGN has a cash-to-debt ratio of 0.09, which is lower than 92.56% of 2755 companies in the Software industry. The overall financial strength of ASGN is 6 out of 10, indicating that the financial strength of ASGN is fair.
ASGN's Profitability and Growth
Investing in profitable companies carries less risk. ASGN has been profitable for 10 years out of the past 10 years. During the past 12 months, the company had revenues of $4.60 billion and Earnings Per Share (EPS) of $4.75. Its operating margin of 8.27% is better than 66.51% of 2747 companies in the Software industry. GuruFocus ranks ASGN's profitability as strong.
Company growth is a crucial factor in valuation. The faster a company is growing, the more likely it is to be creating value for shareholders. The 3-year average annual revenue growth rate of ASGN is 11.8%, ranking better than 58.81% of 2413 companies in the Software industry. The 3-year average EBITDA growth rate is 14.4%, ranking better than 59.01% of 2008 companies in the Software industry.
ASGN's ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can also evaluate a company's profitability. 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 return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, ASGN's ROIC was 9.13 while its WACC came in at 8.65.
Conclusion
Overall, ASGN (NYSE:ASGN) stock appears to be significantly undervalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 59.01% of 2008 companies in the Software industry. To learn more about ASGN stock, you can check out its 30-Year Financials here.
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This article first appeared on GuruFocus.
