Yahoo Finance Trinet Group Stock Shows Every Sign Of Being Modestly Overvalued
- By GF Value
The stock of Trinet Group (NYSE:TNET, 30-year Financials) gives every indication of being modestly 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 $79.3 per share and the market cap of $5.2 billion, Trinet Group stock is believed to be modestly overvalued. GF Value for Trinet Group is shown in the chart below.
Because Trinet Group is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth, which averaged 8.7% over the past five years.
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Since investing in companies with low financial strength could result in permanent capital loss, investors must carefully review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. Trinet Group has a cash-to-debt ratio of 1.03, which ranks in the middle range of the companies in Business Services industry. Based on this, GuruFocus ranks Trinet Group's financial strength as 6 out of 10, suggesting fair balance sheet. This is the debt and cash of Trinet Group over the past years:
It poses less risk to invest in profitable companies, especially those that have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. Trinet Group has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $4 billion and earnings of $4.18 a share. Its operating margin is 9.54%, which ranks better than 71% of the companies in Business Services industry. Overall, GuruFocus ranks the profitability of Trinet Group at 7 out of 10, which indicates fair profitability. This is the revenue and net income of Trinet Group 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 stock performance of a company. A faster growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Trinet Group is 8.7%, which ranks better than 70% of the companies in Business Services industry. The 3-year average EBITDA growth rate is 23.4%, which ranks better than 80% of the companies in Business Services industry.
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). 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 return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, Trinet Group's ROIC is 20.78 while its WACC came in at 9.82. The historical ROIC vs WACC comparison of Trinet Group is shown below:
In summary, the stock of Trinet Group (NYSE:TNET, 30-year Financials) shows every sign of being modestly overvalued. The company's financial condition is fair and its profitability is fair. Its growth ranks better than 80% of the companies in Business Services industry. To learn more about Trinet Group stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.
