The stock of Kewaunee Scientific (NAS:KEQU, 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 $11.97 per share and the market cap of $33.1 million, Kewaunee Scientific stock appears to be modestly undervalued. GF Value for Kewaunee Scientific is shown in the chart below.
Because Kewaunee Scientific is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth, which averaged 1.8% over the past five years.
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Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Thus, it is important to carefully review the financial strength of a company before deciding whether to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company. Kewaunee Scientific has a cash-to-debt ratio of 0.39, which is worse than 70% of the companies in the industry of Furnishings, Fixtures & Appliances. GuruFocus ranks the overall financial strength of Kewaunee Scientific at 4 out of 10, which indicates that the financial strength of Kewaunee Scientific is poor. This is the debt and cash of Kewaunee Scientific 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. Kewaunee Scientific has been profitable 9 years over the past 10 years. During the past 12 months, the company had revenues of $143 million and loss of $0.65 a share. Its operating margin of -1.85% worse than 82% of the companies in the industry of Furnishings, Fixtures & Appliances. Overall, GuruFocus ranks Kewaunee Scientific's profitability as fair. This is the revenue and net income of Kewaunee Scientific 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 Kewaunee Scientific is 1.8%, which ranks in the middle range of the companies in the industry of Furnishings, Fixtures & Appliances. The 3-year average EBITDA growth is -69.4%, which ranks in the bottom 10% of the companies in the industry of Furnishings, Fixtures & Appliances.
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average 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. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Kewaunee Scientific's return on invested capital is -2.48, and its cost of capital is 5.39.
In short, Kewaunee Scientific (NAS:KEQU, 30-year Financials) stock appears to be modestly undervalued. The company's financial condition is poor and its profitability is fair. Its growth ranks in the bottom 10% of the companies in the industry of Furnishings, Fixtures & Appliances. To learn more about Kewaunee Scientific stock, you can check out its 30-year Financials here.
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