The stock of Enstar Group (NAS:ESGR, 30-year Financials) shows every sign of being modestly 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 $246.65 per share and the market cap of $5.4 billion, Enstar Group stock appears to be modestly undervalued. GF Value for Enstar Group is shown in the chart below.
Because Enstar Group is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth, which averaged 29% over the past five years.
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Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. Enstar Group has a cash-to-debt ratio of 0.66, which which ranks worse than 73% of the companies in Insurance industry. The overall financial strength of Enstar Group is 5 out of 10, which indicates that the financial strength of Enstar Group is fair. This is the debt and cash of Enstar Group 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. Enstar Group has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of $2.6 billion and earnings of $78.57 a share. Its operating margin is 0.00%, which ranks in the bottom 10% of the companies in Insurance industry. Overall, GuruFocus ranks the profitability of Enstar Group at 6 out of 10, which indicates fair profitability. This is the revenue and net income of Enstar Group 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 Enstar Group is 29%, which ranks better than 93% of the companies in Insurance industry. The 3-year average EBITDA growth is 57.1%, which ranks better than 96% of the companies in Insurance 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, Enstar Group's ROIC is 7.82 while its WACC came in at 5.45. The historical ROIC vs WACC comparison of Enstar Group is shown below:
In short, The stock of Enstar Group (NAS:ESGR, 30-year Financials) gives every indication of being modestly undervalued. The company's financial condition is fair and its profitability is fair. Its growth ranks better than 96% of the companies in Insurance industry. To learn more about Enstar Group stock, you can check out its 30-year Financials here.
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