Yahoo Finance Skyline Champion Stock Appears To Be Significantly Overvalued
- By GF Value
The stock of Skyline Champion (NYSE:SKY, 30-year Financials) is believed to be significantly overvalued, 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 $45.89 per share and the market cap of $2.6 billion, Skyline Champion stock is believed to be significantly overvalued. GF Value for Skyline Champion is shown in the chart below.
Because Skyline Champion is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 7.6% over the past three years and is estimated to grow 6.97% annually over the next three to five years.
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Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Thus, it is important to carefully review the financial strength of a company before deciding whether to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company. Skyline Champion has a cash-to-debt ratio of 4.11, which is better than 83% of the companies in Homebuilding & Construction industry. GuruFocus ranks the overall financial strength of Skyline Champion at 8 out of 10, which indicates that the financial strength of Skyline Champion is strong. This is the debt and cash of Skyline Champion 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. Skyline Champion has been profitable 4 years over the past 10 years. During the past 12 months, the company had revenues of $1.3 billion and earnings of $1.01 a share. Its operating margin of 5.90% worse than 66% of the companies in Homebuilding & Construction industry. Overall, GuruFocus ranks Skyline Champion's profitability as poor. This is the revenue and net income of Skyline Champion over the past years:
Growth is probably one of the most important factors 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. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. Skyline Champion's 3-year average revenue growth rate is in the middle range of the companies in Homebuilding & Construction industry. Skyline Champion's 3-year average EBITDA growth rate is 28.6%, which ranks better than 83% of the companies in Homebuilding & Construction 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, Skyline Champion's return on invested capital is 11.26, and its cost of capital is 13.95. The historical ROIC vs WACC comparison of Skyline Champion is shown below:
In closing, the stock of Skyline Champion (NYSE:SKY, 30-year Financials) shows every sign of being significantly overvalued. The company's financial condition is strong and its profitability is poor. Its growth ranks better than 83% of the companies in Homebuilding & Construction industry. To learn more about Skyline Champion stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.
