As of October 31, 2023, Forward Air Corp (FWRD, Financial) has experienced a daily loss of -9.26% and a 3-month loss of -45.46%. This considerable decrease in stock value raises the inevitable question: Is the stock significantly undervalued? With an Earnings Per Share (EPS) (EPS) of 5.66, we delve into a valuation analysis of Forward Air (FWRD) to provide a comprehensive answer.
Company Overview
Forward Air Corp is an asset-light freight and logistics company that operates two main segments: Expedited Freight and Intermodal. The company derives most of its revenue from its Expedited Freight segment, which offers a range of services including regional, inter-regional, and national LTL (less-than-truckload) services, local pick-up and delivery, final mile, truckload, shipment consolidation and deconsolidation, warehousing, and customs brokerage. Despite the recent drop in stock value, the company's market cap stands at $1.70 billion, with sales reaching $1.80 billion.
Understanding the GF Value
The GF Value is a proprietary estimation of a stock's fair value, calculated based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line on our summary page provides a visual representation of the stock's ideal fair trading value. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
At its current price of $64.41 per share and the market cap of $1.70 billion, Forward Air's stock appears to be significantly undervalued according to the GuruFocus Value calculation. This suggests that the long-term return of its stock is likely to be much higher than its business growth.
Financial Strength
Assessing the financial strength of a company is crucial before investing in its stock. Companies with poor financial strength pose a higher risk of permanent loss. One way to understand the financial strength of a company is by looking at the cash-to-debt ratio and interest coverage. Forward Air has a cash-to-debt ratio of 0.06, which is worse than 90.15% of 944 companies in the Transportation industry. However, the overall financial strength of Forward Air is 7 out of 10, indicating fair financial health.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is generally less risky. A company with high profit margins is usually a safer investment than those with low profit margins. Forward Air has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $1.80 billion and Earnings Per Share (EPS) of $5.66. Its operating margin is 11.74%, which ranks better than 62.58% of 954 companies in the Transportation industry. Overall, the profitability of Forward Air is ranked 9 out of 10, indicating strong profitability.
Growth is another important factor in the valuation of a company. 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 Forward Air is 19.5%, which ranks better than 79.5% of 917 companies in the Transportation industry. The 3-year average EBITDA growth rate is 30.3%, which ranks better than 76.18% of 823 companies in the Transportation industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can also evaluate a company's profitability. 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, Forward Air's ROIC is 14.87 while its WACC came in at 11.09.
Conclusion
In summary, the stock of Forward Air (FWRD, Financial) appears to be significantly undervalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 76.18% of 823 companies in the Transportation industry. To learn more about Forward Air stock, you can check out its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
