Yahoo Finance Orora Stock Shows Every Sign Of Being Fairly Valued
- By GF Value
The stock of Orora (ASX:ORA, 30-year Financials) is estimated to be fairly valued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. 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. At its current price of AUD 3.11 per share and the market cap of AUD 2.8 billion, Orora stock shows every sign of being fairly valued. GF Value for Orora is shown in the chart below.
Because Orora is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth.
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Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. Orora has a cash-to-debt ratio of 0.14, which which ranks worse than 77% of the companies in Packaging & Containers industry. The overall financial strength of Orora is 5 out of 10, which indicates that the financial strength of Orora is fair. This is the debt and cash of Orora over the past years:
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Orora has been profitable 6 years over the past 10 years. During the past 12 months, the company had revenues of AUD 3.5 billion and earnings of AUD 0.249 a share. Its operating margin of 2.24% worse than 75% of the companies in Packaging & Containers industry. Overall, GuruFocus ranks Orora's profitability as fair. This is the revenue and net income of Orora over the past years:
Growth is probably the most important factor in the valuation of a company. GuruFocus research 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 3-year average annual revenue growth rate of Orora is -4.1%, which ranks worse than 78% of the companies in Packaging & Containers industry. The 3-year average EBITDA growth rate is -35.9%, which ranks in the bottom 10% of the companies in Packaging & Containers industry.
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average 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. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Orora's return on invested capital is 2.57, and its cost of capital is 4.68. The historical ROIC vs WACC comparison of Orora is shown below:
In short, the stock of Orora (ASX:ORA, 30-year Financials) is believed to be fairly valued. The company's financial condition is fair and its profitability is fair. Its growth ranks in the bottom 10% of the companies in Packaging & Containers industry. To learn more about Orora stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.