Unveiling The GEO Group's Value: Is It Really Priced Right? A Comprehensive Guide
With a daily gain of 6.1% and a three-month gain of 11.5%, The GEO Group Inc (NYSE:GEO) has been making significant strides in the stock market. The company's Earnings Per Share (EPS) stands at 0.93, a key metric for investors. But the question remains: Is the stock fairly valued? This article delves into an in-depth valuation analysis to answer this question. Read on to gain valuable insights into the company's financial standing.
Company Introduction
The GEO Group Inc specializes in detention facilities and community-reentry centers. It operates in four segments: U.S. Secure Services, Electronic Monitoring and Supervision Services, Reentry Services, and International Services. The company's stock price currently stands at $8.02, with a market cap of $1 billion. Comparing this stock price with the GF Value, an estimation of fair value, we can begin to explore the company's value in depth.
Understanding GF Value
The GF Value is a unique measure of a stock's intrinsic value, calculated based on historical multiples, a GuruFocus adjustment factor based on past returns and growth, and future estimates of business performance. The GF Value Line on our summary page provides an overview of the fair value that the stock should ideally be traded at. 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.
According to GuruFocus' valuation method, The GEO Group (NYSE:GEO) is believed to be fairly valued. The GF Value estimates the stock's fair value based on historical multiples, an internal adjustment factor based on the company's past growth, and analyst estimates of future business performance. At its current price of $8.02 per share, The GEO Group has a market cap of $1 billion and is considered fairly valued. As such, the long-term return of its stock is likely to be close to the rate of its business growth.
Financial Strength
Investing in companies with poor financial strength carries a higher risk of permanent capital loss. It is crucial to carefully review a company's financial strength before deciding to buy its stock. A good starting point is to look at the cash-to-debt ratio and interest coverage. The GEO Group's cash-to-debt ratio stands at 0.02, which is worse than 95.62% of 1051 companies in the Business Services industry. GuruFocus ranks The GEO Group's overall financial strength at 4 out of 10, indicating that the company's financial strength is relatively poor.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, poses less risk. A company with high profit margins is also typically a safer investment than one with low profit margins. The GEO Group has been profitable 10 times over the past 10 years. Over the past twelve months, the company had a revenue of $2.4 billion and an Earnings Per Share (EPS) of $0.93. Its operating margin is 16.05%, which ranks better than 79.61% of 1064 companies in the Business Services industry. Overall, GuruFocus ranks The GEO Group's profitability at 8 out of 10, indicating strong profitability.
Growth is a crucial factor in the valuation of a company. Research by GuruFocus has found that growth is closely correlated with the long-term performance of a company's stock. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The GEO Group's 3-year average annual revenue growth rate is -2.2%, which ranks worse than 68.02% of 982 companies in the Business Services industry. The 3-year average EBITDA growth rate is 4.1%, which ranks worse than 61.81% of 851 companies in the Business Services industry.
ROIC vs WACC
Another way to determine a company's profitability is to compare its return on invested capital (ROIC) to the weighted average cost of capital (WACC). The 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. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, The GEO Group's ROIC is 8.5, and its cost of capital is 4.86.
Conclusion
Overall, The GEO Group's stock is believed to be fairly valued. The company's financial condition is poor, and its profitability is strong. Its growth ranks worse than 61.81% of 851 companies in the Business Services industry. To learn more about The GEO Group's stock, you can check out its 30-Year Financials here.
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This article first appeared on GuruFocus.
