The stock of Johnson Outdoors (NAS:JOUT, 30-year Financials) shows every sign of being 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 $146.04 per share and the market cap of $1.5 billion, Johnson Outdoors stock appears to be significantly overvalued. GF Value for Johnson Outdoors is shown in the chart below.
Because Johnson Outdoors is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 6.1% 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. Johnson Outdoors has a cash-to-debt ratio of 4.94, which is better than 80% of the companies in Travel & Leisure industry. The overall financial strength of Johnson Outdoors is 8 out of 10, which indicates that the financial strength of Johnson Outdoors is strong. This is the debt and cash of Johnson Outdoors 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. Johnson Outdoors has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $631.8 million and earnings of $6.78 a share. Its operating margin is 13.90%, which ranks better than 87% of the companies in Travel & Leisure industry. Overall, GuruFocus ranks the profitability of Johnson Outdoors at 8 out of 10, which indicates strong profitability. This is the revenue and net income of Johnson Outdoors 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 Johnson Outdoors is 6.1%, which ranks better than 72% of the companies in Travel & Leisure industry. The 3-year average EBITDA growth is 12.1%, which ranks better than 66% of the companies in Travel & Leisure 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, Johnson Outdoors's return on invested capital is 25.71, and its cost of capital is 7.65. The historical ROIC vs WACC comparison of Johnson Outdoors is shown below:
In summary, the stock of Johnson Outdoors (NAS:JOUT, 30-year Financials) gives every indication of being significantly overvalued. The company's financial condition is strong and its profitability is strong. Its growth ranks better than 66% of the companies in Travel & Leisure industry. To learn more about Johnson Outdoors stock, you can check out its 30-year Financials here.
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