The stock of Mr. Cooper Group (NAS:COOP, 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 $34.7 per share and the market cap of $3 billion, Mr. Cooper Group stock is believed to be modestly overvalued. GF Value for Mr. Cooper Group is shown in the chart below.
Because Mr. Cooper Group is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth, which averaged 20.1% over the past five years.
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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. Mr. Cooper Group has a cash-to-debt ratio of 0.05, which is in the bottom 10% of the companies in Banks industry. The overall financial strength of Mr. Cooper Group is 2 out of 10, which indicates that the financial strength of Mr. Cooper Group is poor. This is the debt and cash of Mr. Cooper 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. Mr. Cooper Group has been profitable 6 over the past 10 years. Over the past twelve months, the company had a revenue of $2.7 billion and earnings of $3.11 a share. Its operating margin is 33.00%, which ranks better than 67% of the companies in Banks industry. Overall, the profitability of Mr. Cooper Group is ranked 4 out of 10, which indicates poor profitability. This is the revenue and net income of Mr. Cooper Group 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 Mr. Cooper Group is 20.1%, which ranks better than 93% of the companies in Banks industry. The 3-year average EBITDA growth rate is 13.8%, which ranks in the middle range of the companies in Banks 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, Mr. Cooper Group's ROIC is 3.97 while its WACC came in at -193.91. The historical ROIC vs WACC comparison of Mr. Cooper Group is shown below:
In closing, the stock of Mr. Cooper Group (NAS:COOP, 30-year Financials) is believed to be modestly overvalued. The company's financial condition is poor and its profitability is poor. Its growth ranks in the middle range of the companies in Banks industry. To learn more about Mr. Cooper Group stock, you can check out its 30-year Financials here.
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