The stock of CBRE Group (NYSE:CBRE, 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 $79.11 per share and the market cap of $26.5 billion, CBRE Group stock gives every indication of being significantly overvalued. GF Value for CBRE Group is shown in the chart below.
Because CBRE Group is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 8.8% over the past three years and is estimated to grow 6.10% annually over the next three to 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. CBRE Group has a cash-to-debt ratio of 0.46, which is in the middle range of the companies in Real Estate industry. The overall financial strength of CBRE Group is 6 out of 10, which indicates that the financial strength of CBRE Group is fair. This is the debt and cash of CBRE Group over the past years:
It is less risky to invest in profitable companies, especially those with consistent profitability over long term. A company with high profit margins is usually a safer investment than those with low profit margins. CBRE Group has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $23.8 billion and earnings of $2.23 a share. Its operating margin is 4.07%, which ranks worse than 71% of the companies in Real Estate industry. Overall, the profitability of CBRE Group is ranked 8 out of 10, which indicates strong profitability. This is the revenue and net income of CBRE Group 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 CBRE Group is 8.8%, which ranks in the middle range of the companies in Real Estate industry. The 3-year average EBITDA growth is -3.1%, which ranks in the middle range of the companies in Real Estate industry.
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, CBRE Group's return on invested capital is 6.43, and its cost of capital is 9.36. The historical ROIC vs WACC comparison of CBRE Group is shown below:
In summary, the stock of CBRE Group (NYSE:CBRE, 30-year Financials) shows every sign of being significantly overvalued. The company's financial condition is fair and its profitability is strong. Its growth ranks in the middle range of the companies in Real Estate industry. To learn more about CBRE Group stock, you can check out its 30-year Financials here.
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