Unveiling Donnelley Financial Solutions (DFIN)'s Value: Is It Really Priced Right? A ...
Donnelley Financial Solutions Inc (NYSE:DFIN) has been making waves in the market with a daily gain of 4.09% and a three-month gain of 10.98%. However, with an Earnings Per Share (EPS) of 2.74, one might wonder: is the stock significantly overvalued? In this article, we'll delve into the financials and valuation of Donnelley Financial Solutions to provide an answer to this question. Let's dive in.
A Brief Introduction to Donnelley Financial Solutions Inc (NYSE:DFIN)
Donnelley Financial Solutions is a global risk and compliance solutions company. It provides regulatory filing and deal solutions to public and private companies, mutual funds, and other regulated investment firms. The company operates in four segments: Capital Markets - Software Solutions, Capital Markets - Compliance and Communications Management, Investment Companies - Software Solutions, and Investment Companies - Compliance and Communications Management. The majority of its revenue comes from the United States.
Currently, Donnelley Financial Solutions' stock price stands at $51.71, while its GF Value, an estimation of its fair value, is $32.33. This discrepancy indicates that the stock might be significantly overvalued.
Understanding the GF Value
The GF Value represents the current intrinsic value of a stock based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line on our summary page gives an overview of the fair value that the stock should be traded at. 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.
According to our analysis, Donnelley Financial Solutions (NYSE:DFIN) appears to be significantly overvalued. With a market cap of $1.50 billion, its future return is likely to be much lower than its future business growth.
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Financial Strength of Donnelley Financial Solutions
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. Donnelley Financial Solutions has a cash-to-debt ratio of 0.08, which ranks worse than 93.09% of 753 companies in the Capital Markets industry. Based on this, GuruFocus ranks Donnelley Financial Solutions's financial strength as 6 out of 10, suggesting a fair balance sheet.
Profitability and Growth of Donnelley Financial Solutions
Companies that have been consistently profitable over the long term offer less risk for investors. Donnelley Financial Solutions has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of $797.10 million and Earnings Per Share (EPS) of $2.74. Its operating margin is 16.13%, which ranks better than 56.74% of 645 companies in the Capital Markets industry. Overall, the profitability of Donnelley Financial Solutions is ranked 7 out of 10, which indicates fair profitability.
On the growth front, Donnelley Financial Solutions's 3-year average revenue growth rate is worse than 65.15% of 683 companies in the Capital Markets industry. However, its 3-year average EBITDA growth rate is 12.6%, which ranks better than 50.32% of 471 companies in the Capital Markets industry.
ROIC vs WACC: A Profitability Comparison
Comparing a company's return on invested capital (ROIC) and the weighted cost of capital (WACC) can provide insights into its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. The WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. For the past 12 months, Donnelley Financial Solutions's ROIC is 14.39, and its cost of capital is 10.18.
Conclusion
In summary, the stock of Donnelley Financial Solutions (NYSE:DFIN) appears to be significantly overvalued. The company's financial condition is fair and its profitability is fair. Its growth ranks better than 50.32% of 471 companies in the Capital Markets industry. To learn more about Donnelley Financial Solutions stock, you can check out its 30-Year Financials here.
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This article first appeared on GuruFocus.
