The stock of USA Truck (NAS:USAK, 30-year Financials) appears 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 $15.8 per share and the market cap of $138.2 million, USA Truck stock shows every sign of being significantly overvalued. GF Value for USA Truck is shown in the chart below.
Because USA Truck is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 3.9% over the past five years.
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It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. USA Truck has a cash-to-debt ratio of 0.00, which is in the bottom 10% of the companies in Transportation industry. The overall financial strength of USA Truck is 4 out of 10, which indicates that the financial strength of USA Truck is poor. This is the debt and cash of USA Truck over the past years:
It is less risky to invest in profitable companies, especially those with consistent profitability over long term. A company with high profit margins is usually a safer investment than those with low profit margins. USA Truck has been profitable 5 over the past 10 years. Over the past twelve months, the company had a revenue of $551.1 million and earnings of $0.51 a share. Its operating margin is 2.52%, which ranks in the middle range of the companies in Transportation industry. Overall, the profitability of USA Truck is ranked 5 out of 10, which indicates fair profitability. This is the revenue and net income of USA Truck over the past years:
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of USA Truck is 3.9%, which ranks in the middle range of the companies in Transportation industry. The 3-year average EBITDA growth is 23.5%, which ranks better than 82% of the companies in Transportation industry.
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted 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 ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, USA Truck's ROIC was 3.06, while its WACC came in at 7.90. The historical ROIC vs WACC comparison of USA Truck is shown below:
Overall, the stock of USA Truck (NAS:USAK, 30-year Financials) is believed to be significantly overvalued. The company's financial condition is poor and its profitability is fair. Its growth ranks better than 82% of the companies in Transportation industry. To learn more about USA Truck stock, you can check out its 30-year Financials here.
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