The stock of Tegna (NYSE:TGNA, 30-year Financials) shows every sign of being 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 $18.92 per share and the market cap of $4.2 billion, Tegna stock appears to be modestly overvalued. GF Value for Tegna is shown in the chart below.
Because Tegna is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth, which averaged 15.2% over the past three years and is estimated to grow 11.72% annually over the next three to five years.
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. Tegna has a cash-to-debt ratio of 0.01, which which ranks in the bottom 10% of the companies in the industry of Media - Diversified. The overall financial strength of Tegna is 4 out of 10, which indicates that the financial strength of Tegna is poor. This is the debt and cash of Tegna 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. Tegna has been profitable 10 years over the past 10 years. During the past 12 months, the company had revenues of $2.9 billion and earnings of $2.19 a share. Its operating margin of 29.31% better than 94% of the companies in the industry of Media - Diversified. Overall, GuruFocus ranks Tegna's profitability as fair. This is the revenue and net income of Tegna 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 Tegna is 15.2%, which ranks better than 83% of the companies in the industry of Media - Diversified. The 3-year average EBITDA growth rate is 13.9%, which ranks better than 67% of the companies in the industry of Media - Diversified.
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, Tegna's ROIC is 10.03 while its WACC came in at 6.65. The historical ROIC vs WACC comparison of Tegna is shown below:
Overall, the stock of Tegna (NYSE:TGNA, 30-year Financials) appears to be modestly overvalued. The company's financial condition is poor and its profitability is fair. Its growth ranks better than 67% of the companies in the industry of Media - Diversified. To learn more about Tegna stock, you can check out its 30-year Financials here.
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