The stock of CyrusOne (NAS:CONE, 30-year Financials) is believed 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 $70.5 per share and the market cap of $8.6 billion, CyrusOne stock shows every sign of being fairly valued. GF Value for CyrusOne is shown in the chart below.
Because CyrusOne is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which averaged 5.1% over the past three years and is estimated to grow 8.37% 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. CyrusOne has a cash-to-debt ratio of 0.07, which ranks in the middle range of the companies in REITs industry. Based on this, GuruFocus ranks CyrusOne's financial strength as 3 out of 10, suggesting poor balance sheet. This is the debt and cash of CyrusOne over the past years:
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. CyrusOne has been profitable 5 years over the past 10 years. During the past 12 months, the company had revenues of $1.1 billion and earnings of $0.37 a share. Its operating margin of 5.15% worse than 88% of the companies in REITs industry. Overall, GuruFocus ranks CyrusOne's profitability as fair. This is the revenue and net income of CyrusOne over the past years:
Growth is probably one of the most important factors 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. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. CyrusOne's 3-year average revenue growth rate is better than 75% of the companies in REITs industry. CyrusOne's 3-year average EBITDA growth rate is 18.7%, which ranks better than 87% of the companies in REITs 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, CyrusOne's ROIC was 0.97, while its WACC came in at 3.31. The historical ROIC vs WACC comparison of CyrusOne is shown below:
To conclude, the stock of CyrusOne (NAS:CONE, 30-year Financials) is estimated to be fairly valued. The company's financial condition is poor and its profitability is fair. Its growth ranks better than 87% of the companies in REITs industry. To learn more about CyrusOne stock, you can check out its 30-year Financials here.
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