The stock of The Interpublic Group of (NYSE:IPG, 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 $28.44 per share and the market cap of $11.1 billion, The Interpublic Group of stock is believed to be significantly overvalued. GF Value for The Interpublic Group of is shown in the chart below.
Because The Interpublic Group of is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 0.4% over the past five years.
It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. The Interpublic Group of has a cash-to-debt ratio of 0.49, which is in the middle range of the companies in the industry of Media - Diversified. The overall financial strength of The Interpublic Group of is 4 out of 10, which indicates that the financial strength of The Interpublic Group of is poor. This is the debt and cash of The Interpublic Group of over the past years:
It poses less risk to invest in profitable companies, especially those that have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. The Interpublic Group of has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $9.1 billion and earnings of $0.88 a share. Its operating margin is 11.06%, which ranks better than 75% of the companies in the industry of Media - Diversified. Overall, GuruFocus ranks the profitability of The Interpublic Group of at 7 out of 10, which indicates fair profitability. This is the revenue and net income of The Interpublic Group of 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. The Interpublic Group of's 3-year average revenue growth rate is in the middle range of the companies in the industry of Media - Diversified. The Interpublic Group of's 3-year average EBITDA growth rate is -7.8%, which ranks in the middle range of the companies in the industry of Media - Diversified.
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, The Interpublic Group of's return on invested capital is 9.51, and its cost of capital is 6.66. The historical ROIC vs WACC comparison of The Interpublic Group of is shown below:
In conclusion, the stock of The Interpublic Group of (NYSE:IPG, 30-year Financials) gives every indication of being significantly overvalued. The company's financial condition is poor and its profitability is fair. Its growth ranks in the middle range of the companies in the industry of Media - Diversified. To learn more about The Interpublic Group of stock, you can check out its 30-year Financials here.
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