The stock of Orient Overseas (International) (OTCPK:OROVY, 30-year Financials) is estimated 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 $93.45 per share and the market cap of $11.9 billion, Orient Overseas (International) stock gives every indication of being significantly overvalued. GF Value for Orient Overseas (International) is shown in the chart below.
Because Orient Overseas (International) is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 10.8% over the past 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. Orient Overseas (International) has a cash-to-debt ratio of 1.05, which which ranks better than 77% of the companies in Transportation industry. The overall financial strength of Orient Overseas (International) is 6 out of 10, which indicates that the financial strength of Orient Overseas (International) is fair. This is the debt and cash of Orient Overseas (International) 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. Orient Overseas (International) has been profitable 9 years over the past 10 years. During the past 12 months, the company had revenues of $8.2 billion and earnings of $7.215 a share. Its operating margin of 11.72% better than 74% of the companies in Transportation industry. Overall, GuruFocus ranks Orient Overseas (International)’s profitability as fair. This is the revenue and net income of Orient Overseas (International) 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 performance of a company’s stock. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Orient Overseas (International) is 10.8%, which ranks better than 84% of the companies in Transportation industry. The 3-year average EBITDA growth rate is 27.5%, which ranks better than 84% of the companies in Transportation 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, Orient Overseas (International)’s ROIC is 11.74 while its WACC came in at 7.99. The historical ROIC vs WACC comparison of Orient Overseas (International) is shown below:
In summary, the stock of Orient Overseas (International) (OTCPK:OROVY, 30-year Financials) is believed to be significantly overvalued. The company's financial condition is fair and its profitability is fair. Its growth ranks better than 84% of the companies in Transportation industry. To learn more about Orient Overseas (International) stock, you can check out its 30-year Financials here.
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