The stock of American Woodmark (NAS:AMWD, 30-year Financials) is estimated to be fairly valued, 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 $98.9 per share and the market cap of $1.7 billion, American Woodmark stock shows every sign of being fairly valued. GF Value for American Woodmark is shown in the chart below.
Because American Woodmark is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which averaged 15.7% 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. American Woodmark has a cash-to-debt ratio of 0.14, which ranks worse than 85% of the companies in the industry of Furnishings, Fixtures & Appliances. Based on this, GuruFocus ranks American Woodmark's financial strength as 5 out of 10, suggesting fair balance sheet. This is the debt and cash of American Woodmark 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. American Woodmark has been profitable 8 over the past 10 years. Over the past twelve months, the company had a revenue of $1.7 billion and earnings of $4.059 a share. Its operating margin is 7.35%, which ranks in the middle range of the companies in the industry of Furnishings, Fixtures & Appliances. Overall, the profitability of American Woodmark is ranked 7 out of 10, which indicates fair profitability. This is the revenue and net income of American Woodmark 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 performance of a company's stock. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of American Woodmark is 15.7%, which ranks better than 84% of the companies in the industry of Furnishings, Fixtures & Appliances. The 3-year average EBITDA growth rate is 20.7%, which ranks better than 82% of the companies in the industry of Furnishings, Fixtures & Appliances.
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, American Woodmark's ROIC is 6.36 while its WACC came in at 11.25. The historical ROIC vs WACC comparison of American Woodmark is shown below:
To conclude, the stock of American Woodmark (NAS:AMWD, 30-year Financials) shows every sign of being fairly valued. The company's financial condition is fair and its profitability is fair. Its growth ranks better than 82% of the companies in the industry of Furnishings, Fixtures & Appliances. To learn more about American Woodmark stock, you can check out its 30-year Financials here.
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