The stock of Itron (NAS:ITRI, 30-year Financials) shows every sign of being 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 $87.39 per share and the market cap of $3.9 billion, Itron stock is believed to be significantly overvalued. GF Value for Itron is shown in the chart below.
Because Itron is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 1.8% over the past three years and is estimated to grow 2.39% 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. Itron has a cash-to-debt ratio of 0.60, which ranks worse than 71% of the companies in Hardware industry. Based on this, GuruFocus ranks Itron's financial strength as 5 out of 10, suggesting fair balance sheet. This is the debt and cash of Itron 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. Itron has been profitable 5 over the past 10 years. Over the past twelve months, the company had a revenue of $2.1 billion and loss of $1.36 a share. Its operating margin is 4.33%, which ranks in the middle range of the companies in Hardware industry. Overall, the profitability of Itron is ranked 5 out of 10, which indicates fair profitability. This is the revenue and net income of Itron 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 Itron is 1.8%, which ranks in the middle range of the companies in Hardware industry. The 3-year average EBITDA growth rate is -26.9%, which ranks worse than 89% of the companies in Hardware 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, Itron's ROIC is 4.06 while its WACC came in at 7.79. The historical ROIC vs WACC comparison of Itron is shown below:
In short, the stock of Itron (NAS:ITRI, 30-year Financials) is estimated to be significantly overvalued. The company's financial condition is fair and its profitability is fair. Its growth ranks worse than 89% of the companies in Hardware industry. To learn more about Itron stock, you can check out its 30-year Financials here.
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