The stock of Diamond Hill Investment Group (NAS:DHIL, 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 $165.91 per share and the market cap of $524.3 million, Diamond Hill Investment Group stock shows every sign of being modestly overvalued. GF Value for Diamond Hill Investment Group is shown in the chart below.
Because Diamond Hill Investment Group is relatively overvalued, the long-term return of its stock is likely to be lower than 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. Diamond Hill Investment Group has a cash-to-debt ratio of 10000.00, which which ranks better than 100% of the companies in Asset Management industry. The overall financial strength of Diamond Hill Investment Group is 9 out of 10, which indicates that the financial strength of Diamond Hill Investment Group is strong. This is the debt and cash of Diamond Hill Investment 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. Diamond Hill Investment Group has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $126.4 million and earnings of $12.07 a share. Its operating margin is 36.03%, which ranks better than 70% of the companies in Asset Management industry. Overall, GuruFocus ranks the profitability of Diamond Hill Investment Group at 8 out of 10, which indicates strong profitability. This is the revenue and net income of Diamond Hill Investment Group 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 Diamond Hill Investment Group is -2.2%, which ranks in the middle range of the companies in Asset Management industry. The 3-year average EBITDA growth is -9.7%, which ranks worse than 66% of the companies in Asset Management 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, Diamond Hill Investment Group's ROIC is 21.28 while its WACC came in at 7.76. The historical ROIC vs WACC comparison of Diamond Hill Investment Group is shown below:
In conclusion, The stock of Diamond Hill Investment Group (NAS:DHIL, 30-year Financials) is estimated to be modestly overvalued. The company's financial condition is strong and its profitability is strong. Its growth ranks worse than 66% of the companies in Asset Management industry. To learn more about Diamond Hill Investment Group stock, you can check out its 30-year Financials here.
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