Unveiling CDW (CDW)'s Value: Is It Really Priced Right? A Comprehensive Guide
CDW Corp (NASDAQ:CDW) recently experienced a daily gain of 2.07%, with a 3-month gain of 13.66%. The company's Earnings Per Share (EPS) stands at 7.86, a figure that piques the interest of investors. Despite these positive indicators, the question remains: is the stock modestly overvalued? This article aims to answer that question through an in-depth analysis of CDW's valuation. Let's delve into the financials of this intriguing company.
An Overview of CDW Corp (NASDAQ:CDW)
Operating predominantly in the U.S. (95% of sales) and Canada (5%), CDW Corp is a value-added reseller with more than 100,000 products ranging from notebooks to data center software. The company's revenue sources are diverse, with about half coming from midsize and large businesses and the rest from small businesses, government agencies, education institutions, and health-care organizations. With a current stock price of $205.14, CDW Corp has a market cap of $27.50 billion, slightly above its GF Value of $184.66, indicating a modest overvaluation.
Understanding CDW's GF Value
The GF Value is a unique measure of a stock's intrinsic value, based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line provides an overview of the fair value at which the stock should ideally be traded. 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.
CDW's stock is estimated to be modestly overvalued based on GuruFocus' valuation method. This means that the long-term return of its stock is likely to be lower than its business growth.
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CDW's Financial Strength
Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Therefore, it's crucial to carefully review a company's financial strength before deciding to buy its stock. CDW's cash-to-debt ratio of 0.03 is worse than 97.13% of 2721 companies in the Software industry. GuruFocus ranks CDW's overall financial strength at 5 out of 10, indicating fair financial health.
Profitability and Growth
Investing in profitable companies, especially those consistently profitable over the long term, poses less risk. CDW has been profitable for 10 out of the past 10 years. Over the past twelve months, the company had a revenue of $22.40 billion and Earnings Per Share (EPS) of $7.86. Its operating margin is 7.51%, ranking better than 63.46% of companies in the Software industry. Overall, GuruFocus ranks CDW's profitability at 9 out of 10, indicating strong profitability.
Growth is a crucial factor in the valuation of a company. CDW's 3-year average annual revenue growth rate is 12.4%, which ranks better than 60.41% of companies in the Software industry. The 3-year average EBITDA growth rate is 16.4%, ranking better than 62.78% of companies in the Software industry.
ROIC vs WACC
Another method to determine a company's profitability is to compare its return on invested capital (ROIC) to the weighted average cost of capital (WACC). ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, CDW's ROIC is 13.51, and its WACC is 9.
Conclusion
In summary, CDW's stock is estimated to be modestly overvalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 62.78% of companies in the Software industry. To learn more about CDW stock, you can check out its 30-Year Financials here.
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This article first appeared on GuruFocus.
