The stock of Crown Castle International (NYSE:CCI, 30-year Financials) is believed to be 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 $197.26 per share and the market cap of $85.3 billion, Crown Castle International stock is believed to be significantly overvalued. GF Value for Crown Castle International is shown in the chart below.
Because Crown Castle International is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 7.3% over the past three years and is estimated to grow 5.41% annually over the next three to five years.
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Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. Crown Castle International has a cash-to-debt ratio of 0.01, which which ranks worse than 88% of the companies in REITs industry. The overall financial strength of Crown Castle International is 3 out of 10, which indicates that the financial strength of Crown Castle International is poor. This is the debt and cash of Crown Castle International over the past years:
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Crown Castle International has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $5.9 billion and earnings of $2.09 a share. Its operating margin is 34.30%, which ranks in the middle range of the companies in REITs industry. Overall, the profitability of Crown Castle International is ranked 8 out of 10, which indicates strong profitability. This is the revenue and net income of Crown Castle International 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. Crown Castle International's 3-year average revenue growth rate is better than 83% of the companies in REITs industry. Crown Castle International's 3-year average EBITDA growth rate is 11.1%, which ranks better than 81% of the companies in REITs 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, Crown Castle International's return on invested capital is 5.09, and its cost of capital is 3.45. The historical ROIC vs WACC comparison of Crown Castle International is shown below:
Overall, Crown Castle International (NYSE:CCI, 30-year Financials) stock is estimated to be significantly overvalued. The company's financial condition is poor and its profitability is strong. Its growth ranks better than 81% of the companies in REITs industry. To learn more about Crown Castle International stock, you can check out its 30-year Financials here.
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