Unveiling Target Hospitality Corp's (TH) True Worth: Is It Really Priced Right? A Comprehensive ...
Target Hospitality Corp (NASDAQ:TH) has recently experienced a daily loss of -3.26 %, while its 3-month gain stands at 12.59%. The company's Earnings Per Share (EPS) is 1.33. Despite these figures, there is a question that begs to be answered: Is Target Hospitality significantly overvalued? This article aims to provide an in-depth valuation analysis of the company. Let's delve into the details.
Company Overview
Target Hospitality Corp is a specialty rental and hospitality services company based in the United States. The company offers a range of services including catering, maintenance, housekeeping, grounds-keeping, on-site security, workforce lodge management, and laundry service. Its revenue is primarily generated from the Government segment, consisting of specialty rental and hospitality services revenue from customers with Government contracts located in Texas.
Comparing the company's stock price of $14.55 to its GF Value of $9.99, it appears that the stock might be significantly overvalued. The following analysis aims to provide a deeper understanding of the company's intrinsic value.
Understanding GF Value
The GF Value is an exclusive method that estimates a stock's intrinsic value. The GF Value Line provides an overview of the stock's fair trading value, calculated based on historical multiples, an adjustment factor based on the company's past returns and growth, and future estimates of business performance.
The stock of Target Hospitality (NASDAQ:TH) appears to be significantly overvalued according to the GF Value. If the stock price is significantly above the GF Value Line, it suggests the stock may be overvalued and future returns may be poor. Conversely, if the stock price is significantly below the GF Value Line, the stock may be undervalued, suggesting higher future returns. Given Target Hospitality's current price of $14.55 per share and a market cap of $1.50 billion, the stock seems to be significantly overvalued.
Considering the overvaluation, the long-term return of Target Hospitality's stock is likely to be much lower than its future business growth.
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Financial Strength
Investing in companies with low financial strength can result in permanent capital loss. Therefore, it's crucial to review a company's financial strength before deciding to buy shares. Target Hospitality has a cash-to-debt ratio of 0.3, ranking worse than 69.55% of 1051 companies in the Business Services industry. Based on this, GuruFocus ranks Target Hospitality's financial strength as 6 out of 10, suggesting a fair balance sheet.
Profitability and Growth
Companies that have been consistently profitable over the long term offer less risk for investors. Target Hospitality has been profitable 4 over the past 10 years. Over the past twelve months, the company had a revenue of $603.50 million and Earnings Per Share (EPS) of $1.33. Its operating margin is 41.57%, ranking better than 97.18% of 1064 companies in the Business Services industry. Overall, the profitability of Target Hospitality is ranked 6 out of 10, indicating fair profitability.
Growth is a critical factor in the valuation of a company. The 3-year average annual revenue growth of Target Hospitality is 13.9%, ranking better than 75.66% of 982 companies in the Business Services industry. The 3-year average EBITDA growth rate is 21.7%, ranking better than 68.98% of 851 companies in the Business Services industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can provide insight into its profitability. 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. If the ROIC exceeds the WACC, the company is likely creating value for its shareholders. During the past 12 months, Target Hospitality's ROIC is 26.25 while its WACC came in at 20.26.
Conclusion
Overall, Target Hospitality Corp's (NASDAQ:TH) stock appears to be significantly overvalued. The company's financial condition is fair, and its profitability is fair. Its growth ranks better than 68.98% of 851 companies in the Business Services industry. To learn more about Target Hospitality stock, you can check out its 30-Year Financials here.
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This article first appeared on GuruFocus.
