The stock of Old Republic International (NYSE:ORI, 30-year Financials) appears to be fairly valued, 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 $21.9 per share and the market cap of $6.7 billion, Old Republic International stock is estimated to be fairly valued. GF Value for Old Republic International is shown in the chart below.
Because Old Republic International is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which averaged 4.6% over the past five years.
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. Old Republic International has a cash-to-debt ratio of 0.12, which ranks in the bottom 10% of the companies in Insurance industry. Based on this, GuruFocus ranks Old Republic International's financial strength as 5 out of 10, suggesting fair balance sheet. This is the debt and cash of Old Republic International over the past years:
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Old Republic International has been profitable 8 years over the past 10 years. During the past 12 months, the company had revenues of $7.2 billion and earnings of $1.9 a share. Its operating margin of 0.00% in the bottom 10% of the companies in Insurance industry. Overall, GuruFocus ranks Old Republic International's profitability as fair. This is the revenue and net income of Old Republic International 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 Old Republic International is 4.6%, which ranks in the middle range of the companies in Insurance industry. The 3-year average EBITDA growth is -2.4%, which ranks in the middle range of the companies in Insurance industry.
Another way to look at the profitability of a company is to compare its return on invested capital and the weighted 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. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, Old Republic International's return on invested capital is 2.75, and its cost of capital is 5.81. The historical ROIC vs WACC comparison of Old Republic International is shown below:
In short, the stock of Old Republic International (NYSE:ORI, 30-year Financials) appears to be fairly valued. The company's financial condition is fair and its profitability is fair. Its growth ranks in the middle range of the companies in Insurance industry. To learn more about Old Republic International stock, you can check out its 30-year Financials here.
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