The stock of Subaru (OTCPK:FUJHY, 30-year Financials) is believed to be modestly undervalued, 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 $9.83 per share and the market cap of $15.1 billion, Subaru stock is believed to be modestly undervalued. GF Value for Subaru is shown in the chart below.
Because Subaru is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth, which averaged 0.4% over the past three years and is estimated to grow 1.23% annually over the next three to five years.
Link: These companies may deliever higher future returns at reduced risk.
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. Subaru has a cash-to-debt ratio of 3.31, which which ranks better than 78% of the companies in Vehicles & Parts industry. The overall financial strength of Subaru is 7 out of 10, which indicates that the financial strength of Subaru is fair. This is the debt and cash of Subaru 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. Subaru has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $27.7 billion and earnings of $0.712 a share. Its operating margin is 5.31%, which ranks in the middle range of the companies in Vehicles & Parts industry. Overall, the profitability of Subaru is ranked 7 out of 10, which indicates fair profitability. This is the revenue and net income of Subaru 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 Subaru is 0.4%, which ranks in the middle range of the companies in Vehicles & Parts industry. The 3-year average EBITDA growth rate is -4.4%, which ranks in the middle range of the companies in Vehicles & Parts 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, Subaru's return on invested capital is 5.80, and its cost of capital is 5.95. The historical ROIC vs WACC comparison of Subaru is shown below:
To conclude, Subaru (OTCPK:FUJHY, 30-year Financials) stock is estimated to be modestly undervalued. The company's financial condition is fair and its profitability is fair. Its growth ranks in the middle range of the companies in Vehicles & Parts industry. To learn more about Subaru stock, you can check out its 30-year Financials here.
To find out the high quality companies that may deliever above average returns, please check out GuruFocus High Quality Low Capex Screener.
