The stock of Espey Manufacturing & Electronics (AMEX:ESP, 30-year Financials) is believed to be significantly undervalued, 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 $15.7976 per share and the market cap of $42.7 million, Espey Manufacturing & Electronics stock gives every indication of being significantly undervalued. GF Value for Espey Manufacturing & Electronics is shown in the chart below.
Because Espey Manufacturing & Electronics is significantly undervalued, the long-term return of its stock is likely to be much higher than its business growth, which averaged 10.7% 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. Espey Manufacturing & Electronics has a cash-to-debt ratio of 10000.00, which is better than 100% of the companies in Industrial Products industry. The overall financial strength of Espey Manufacturing & Electronics is 10 out of 10, which indicates that the financial strength of Espey Manufacturing & Electronics is strong. This is the debt and cash of Espey Manufacturing & Electronics 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. Espey Manufacturing & Electronics has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $32.5 million and earnings of $0.36 a share. Its operating margin is 2.68%, which ranks worse than 66% of the companies in Industrial Products industry. Overall, the profitability of Espey Manufacturing & Electronics is ranked 7 out of 10, which indicates fair profitability. This is the revenue and net income of Espey Manufacturing & Electronics 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. Espey Manufacturing & Electronics's 3-year average revenue growth rate is better than 73% of the companies in Industrial Products industry. Espey Manufacturing & Electronics's 3-year average EBITDA growth rate is -4.9%, which ranks worse than 68% 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, Espey Manufacturing & Electronics's ROIC is 3.61 while its WACC came in at 3.48. The historical ROIC vs WACC comparison of Espey Manufacturing & Electronics is shown below:
In closing, the stock of Espey Manufacturing & Electronics (AMEX:ESP, 30-year Financials) is estimated to be significantly undervalued. The company's financial condition is strong and its profitability is fair. Its growth ranks worse than 68% of the companies in Industrial Products industry. To learn more about Espey Manufacturing & Electronics stock, you can check out its 30-year Financials here.
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