The stock of Tanger Factory Outlet Centers (NYSE:SKT, 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 $15.69 per share and the market cap of $1.5 billion, Tanger Factory Outlet Centers stock is estimated to be modestly overvalued. GF Value for Tanger Factory Outlet Centers is shown in the chart below.
Because Tanger Factory Outlet Centers is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth.
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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. Tanger Factory Outlet Centers has a cash-to-debt ratio of 0.05, which is in the middle range of the companies in REITs industry. The overall financial strength of Tanger Factory Outlet Centers is 3 out of 10, which indicates that the financial strength of Tanger Factory Outlet Centers is poor. This is the debt and cash of Tanger Factory Outlet Centers 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. Tanger Factory Outlet Centers has been profitable 9 years over the past 10 years. During the past 12 months, the company had revenues of $390 million and loss of $0.407 a share. Its operating margin of 22.56% worse than 75% of the companies in REITs industry. Overall, GuruFocus ranks Tanger Factory Outlet Centers's profitability as fair. This is the revenue and net income of Tanger Factory Outlet Centers 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 Tanger Factory Outlet Centers is -6.6%, which ranks worse than 79% of the companies in REITs industry. The 3-year average EBITDA growth is -18.1%, which ranks worse than 78% of the companies in REITs 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, Tanger Factory Outlet Centers's return on invested capital is 4.17, and its cost of capital is 8.77. The historical ROIC vs WACC comparison of Tanger Factory Outlet Centers is shown below:
Overall, The stock of Tanger Factory Outlet Centers (NYSE:SKT, 30-year Financials) appears to be modestly overvalued. The company's financial condition is poor and its profitability is fair. Its growth ranks worse than 78% of the companies in REITs industry. To learn more about Tanger Factory Outlet Centers stock, you can check out its 30-year Financials here.
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