Yahoo Finance WESCO International Stock Is Believed To Be Modestly Overvalued
- By GF Value
The stock of WESCO International (NYSE:WCC, 30-year Financials) is estimated to be 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 $106.68 per share and the market cap of $5.4 billion, WESCO International stock is believed to be modestly overvalued. GF Value for WESCO International is shown in the chart below.
Because WESCO International is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth, which averaged 18.5% over the past three years and is estimated to grow 14.11% annually over the next three to 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. WESCO International has a cash-to-debt ratio of 0.06, which ranks in the bottom 10% of the companies in Industrial Distribution industry. Based on this, GuruFocus ranks WESCO International's financial strength as 4 out of 10, suggesting poor balance sheet. This is the debt and cash of WESCO International over the past years:
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. WESCO International has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $14.4 billion and earnings of $1.45 a share. Its operating margin is 2.91%, which ranks in the middle range of the companies in Industrial Distribution industry. Overall, the profitability of WESCO International is ranked 7 out of 10, which indicates fair profitability. This is the revenue and net income of WESCO International 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 WESCO International is 18.5%, which ranks better than 92% of the companies in Industrial Distribution industry. The 3-year average EBITDA growth rate is 8.3%, which ranks in the middle range of the companies in Industrial Distribution industry.
Another way to look at the profitability of a company is to compare its return on invested capital and the weighted 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. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, WESCO International's return on invested capital is 4.30, and its cost of capital is 12.36. The historical ROIC vs WACC comparison of WESCO International is shown below:
Overall, the stock of WESCO International (NYSE:WCC, 30-year Financials) appears to be modestly overvalued. The company's financial condition is poor and its profitability is fair. Its growth ranks in the middle range of the companies in Industrial Distribution industry. To learn more about WESCO International stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.
