Unveiling Summit Materials (SUM)'s Value: Is It Really Priced Right? A Comprehensive Guide
On October 19, 2023, Summit Materials Inc (NYSE:SUM) experienced a daily gain of 9.25%, contrasting with a 3-month loss of 5.75%. The company's Earnings Per Share (EPS) stands at 1.41, sparking questions about whether the stock is modestly overvalued. This article aims to provide an in-depth analysis of SUM's intrinsic value, including its financial strength, profitability, and growth. Stay with us as we delve into these critical aspects.
Company Overview
Summit Materials is a leading aggregates supplier and cement producer in the United States and British Columbia, Canada. The company's products range from aggregates, cement, ready-mix concrete, and asphalt paving mix, which are supplied across its operating regions. With assets in 21 U.S. states and British Columbia, Summit Materials has a diverse portfolio. As of October 19, 2023, the company's stock price stands at $34.72, with a market cap of $4.10 billion, hinting at a modest overvaluation compared to its GF Value of $29.67.
Understanding the GF Value
The GF Value is a proprietary measure that represents the intrinsic value of a stock. It is calculated based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line provides an overview of the stock's 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. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
Summit Materials (NYSE:SUM) appears to be modestly overvalued based on the GF Value calculation. With a current price of $34.72 per share and a market cap of $4.10 billion, the long-term return of its stock is likely to be lower than its business growth.
Financial Strength
The financial strength of a company is crucial before investing in its stock. Summit Materials has a cash-to-debt ratio of 0.15, ranking lower than 72.68% of 355 companies in the Building Materials industry. The overall financial strength of Summit Materials is 5 out of 10, indicating a fair financial condition.
Profitability and Growth
Summit Materials' profitability and growth are other essential factors to consider. The company has been profitable 8 years over the past 10 years, with an operating margin of 12.03% that ranks better than 69.7% of 363 companies in the Building Materials industry. However, its 3-year average annual revenue growth rate is 1%, ranking lower than 66.19% of 352 companies in the industry. On a brighter note, its 3-year average EBITDA growth rate is 14.6%, outperforming 73.5% of 317 companies in the industry.
ROIC vs WACC
Comparing a company's Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC) can provide insights into its profitability. Summit Materials' ROIC is 6.3, lower than its WACC of 10.27, suggesting that the company may not be creating value for shareholders.
Conclusion
In conclusion, Summit Materials (NYSE:SUM) appears to be modestly overvalued. The company's financial condition is fair, and its profitability is also fair. Despite a lower-than-average growth rate, its EBITDA growth outperforms most companies in the Building Materials industry. For more information about Summit Materials stock, check out its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
This article first appeared on GuruFocus.
