The stock of Werner Enterprises (NAS:WERN, 30-year Financials) gives every indication 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 $47.62 per share and the market cap of $3.2 billion, Werner Enterprises stock is estimated to be modestly overvalued. GF Value for Werner Enterprises is shown in the chart below.
Because Werner Enterprises is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth, which averaged 5.4% over the past three years and is estimated to grow 2.18% annually over the next three to five years.
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Since investing in companies with low financial strength could result in permanent capital loss, investors must carefully review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. Werner Enterprises has a cash-to-debt ratio of 0.15, which ranks worse than 69% of the companies in Transportation industry. Based on this, GuruFocus ranks Werner Enterprises's financial strength as 6 out of 10, suggesting fair balance sheet. This is the debt and cash of Werner Enterprises 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. Werner Enterprises has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $2.4 billion and earnings of $2.44 a share. Its operating margin is 9.59%, which ranks better than 70% of the companies in Transportation industry. Overall, GuruFocus ranks the profitability of Werner Enterprises at 8 out of 10, which indicates strong profitability. This is the revenue and net income of Werner Enterprises 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 Werner Enterprises is 5.4%, which ranks in the middle range of the companies in Transportation industry. The 3-year average EBITDA growth is 12.2%, which ranks better than 69% of the companies in Transportation industry.
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted 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 ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Werner Enterprises's ROIC was 9.21, while its WACC came in at 5.95. The historical ROIC vs WACC comparison of Werner Enterprises is shown below:
In summary, the stock of Werner Enterprises (NAS:WERN, 30-year Financials) is estimated to be modestly overvalued. The company's financial condition is fair and its profitability is strong. Its growth ranks better than 69% of the companies in Transportation industry. To learn more about Werner Enterprises stock, you can check out its 30-year Financials here.
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