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Unveiling The GEO Group (GEO)'s Value: Is It Really Priced Right? A Comprehensive Guide

The GEO Group Inc (NYSE:GEO), a leading company specializing in detention facilities and community-reentry centers, has seen a significant gain of 5.5% in its daily stock price, and an impressive 18.92% increase over the past three months. With an Earnings Per Share (EPS) of 0.93, the question arises: is the stock fairly valued? To answer this, we delve into an in-depth valuation analysis of The GEO Group (NYSE:GEO).

Company Overview of The GEO Group

The GEO Group Inc operates in four segments: U.S. Secure Services, Electronic Monitoring and Supervision Services, Reentry Services, and International Services. It primarily encompasses U.S.-based secure services business, provides monitoring services and evidence-based supervision and treatment programs for community-based parolees, probationers, and pretrial defendants, and offers residential and non-residential treatment, educational and community-based programs, pre-release and half-way house programs. Comparing the stock price and the GF Value, an estimation of fair value, will provide a profound exploration of the company's value.

Unveiling The GEO Group (GEO)'s Value: Is It Really Priced Right? A Comprehensive Guide
Unveiling The GEO Group (GEO)'s Value: Is It Really Priced Right? A Comprehensive Guide

Understanding The GEO Group's GF Value

The GF Value is a proprietary measure that represents the current intrinsic value of a stock. The GF Value Line provides an overview of the fair value that the stock should ideally be traded at. It is calculated based on three factors: historical multiples (PE Ratio, PS Ratio, PB Ratio and Price-to-Free-Cash-Flow) that the stock has traded at, GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of the business performance. The stock price will most likely fluctuate around the GF Value Line.

The GEO Group (NYSE:GEO) stock appears to be fairly valued based on the GuruFocus Value calculation. At its current price of $8.63 per share, The GEO Group has a market cap of $1.10 billion and the stock appears to be fairly valued. This suggests that the long-term return of its stock is likely to be close to the rate of its business growth.

Unveiling The GEO Group (GEO)'s Value: Is It Really Priced Right? A Comprehensive Guide
Unveiling The GEO Group (GEO)'s Value: Is It Really Priced Right? A Comprehensive Guide

Financial Strength of The GEO Group

It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. The GEO Group has a cash-to-debt ratio of 0.02, which is worse than 95.67% of 1039 companies in the Business Services industry. The overall financial strength of The GEO Group is 4 out of 10, which indicates that the financial strength of The GEO Group is poor.

Unveiling The GEO Group (GEO)'s Value: Is It Really Priced Right? A Comprehensive Guide
Unveiling The GEO Group (GEO)'s Value: Is It Really Priced Right? A Comprehensive Guide

Profitability and Growth of The GEO Group

Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. The GEO Group has been profitable 10 years over the past 10 years. During the past 12 months, the company had revenues of $2.40 billion and Earnings Per Share (EPS) of $0.93. Its operating margin of 16.05% better than 79.66% of 1052 companies in the Business Services industry.

Growth is one of the most important factors in the valuation of a company. The GEO Group's 3-year average revenue growth rate is worse than 68.48% of 974 companies in the Business Services industry. The GEO Group's 3-year average EBITDA growth rate is 4.1%, which ranks worse than 62.13% of 845 companies in the Business Services industry.

ROIC vs WACC of The GEO Group

Another way to look at the profitability of a company is to compare its return on invested capital and the weighted cost of capital. 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. For the past 12 months, The GEO Group's return on invested capital is 8.5, and its cost of capital is 4.95.

Unveiling The GEO Group (GEO)'s Value: Is It Really Priced Right? A Comprehensive Guide
Unveiling The GEO Group (GEO)'s Value: Is It Really Priced Right? A Comprehensive Guide

Conclusion

Overall, The GEO Group (NYSE:GEO) stock appears to be fairly valued. The company's financial condition is poor and its profitability is strong. Its growth ranks worse than 62.13% of 845 companies in the Business Services industry. To learn more about The GEO Group stock, you can check out its 30-Year Financials here.

To find out the high quality companies that may deliever above average returns, please check out GuruFocus High Quality Low Capex Screener.

This article first appeared on GuruFocus.

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