The stock of RBC Bearings (NAS:ROLL, 30-year Financials) appears to be modestly 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 $189.33 per share and the market cap of $4.8 billion, RBC Bearings stock is estimated to be modestly overvalued. GF Value for RBC Bearings is shown in the chart below.
Because RBC Bearings is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth, which averaged 4.1% over the past five years.
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Since investing in companies with low financial strength could result in permanent capital loss, investors must carefully review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. RBC Bearings has a cash-to-debt ratio of 3.49, which ranks better than 68% of the companies in Industrial Products industry. Based on this, GuruFocus ranks RBC Bearings's financial strength as 8 out of 10, suggesting strong balance sheet. This is the debt and cash of RBC Bearings 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. RBC Bearings has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $634.5 million and earnings of $3.94 a share. Its operating margin is 20.43%, which ranks better than 93% of the companies in Industrial Products industry. Overall, GuruFocus ranks the profitability of RBC Bearings at 9 out of 10, which indicates strong profitability. This is the revenue and net income of RBC Bearings 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 RBC Bearings is 4.1%, which ranks in the middle range of the companies in Industrial Products industry. The 3-year average EBITDA growth is 8.3%, which ranks in the middle range of the companies in Industrial Products 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, RBC Bearings's ROIC is 9.13 while its WACC came in at 10.18. The historical ROIC vs WACC comparison of RBC Bearings is shown below:
In closing, RBC Bearings (NAS:ROLL, 30-year Financials) stock appears to be modestly overvalued. The company's financial condition is strong and its profitability is strong. Its growth ranks in the middle range of the companies in Industrial Products industry. To learn more about RBC Bearings stock, you can check out its 30-year Financials here.
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