The stock of Legal & General Group PLC (OTCPK:LGGNY, 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 $19.9 per share and the market cap of $23.8 billion, Legal & General Group PLC stock shows every sign of being fairly valued. GF Value for Legal & General Group PLC is shown in the chart below.
Because Legal & General Group PLC is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which averaged 5.2% 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. Legal & General Group PLC has a cash-to-debt ratio of 3.21, which is in the middle range of the companies in Insurance industry. GuruFocus ranks the overall financial strength of Legal & General Group PLC at 5 out of 10, which indicates that the financial strength of Legal & General Group PLC is fair. This is the debt and cash of Legal & General Group PLC 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. Legal & General Group PLC has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $64.8 billion and earnings of $1.699 a share. Its operating margin is 0.00%, which ranks in the bottom 10% of the companies in Insurance industry. Overall, the profitability of Legal & General Group PLC is ranked 4 out of 10, which indicates poor profitability. This is the revenue and net income of Legal & General Group PLC 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 Legal & General Group PLC is 5.2%, which ranks in the middle range of the companies in Insurance industry. The 3-year average EBITDA growth is -9.1%, which ranks worse than 72% of the companies in Insurance 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, Legal & General Group PLC's return on invested capital is 0.28, and its cost of capital is 10.62. The historical ROIC vs WACC comparison of Legal & General Group PLC is shown below:
Overall, Legal & General Group PLC (OTCPK:LGGNY, 30-year Financials) stock appears to be fairly valued. The company's financial condition is fair and its profitability is poor. Its growth ranks worse than 72% of the companies in Insurance industry. To learn more about Legal & General Group PLC stock, you can check out its 30-year Financials here.
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