The stock of Herbalife Nutrition (NYSE:HLF, 30-year Financials) gives every indication 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 $45.06 per share and the market cap of $5.3 billion, Herbalife Nutrition stock gives every indication of being modestly undervalued. GF Value for Herbalife Nutrition is shown in the chart below.
Because Herbalife Nutrition is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth, which averaged 15.5% 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. Herbalife Nutrition has a cash-to-debt ratio of 0.39, which is in the middle range of the companies in the industry of Consumer Packaged Goods. The overall financial strength of Herbalife Nutrition is 4 out of 10, which indicates that the financial strength of Herbalife Nutrition is poor. This is the debt and cash of Herbalife Nutrition 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. Herbalife Nutrition has been profitable 10 years over the past 10 years. During the past 12 months, the company had revenues of $5.5 billion and earnings of $2.77 a share. Its operating margin of 11.56% better than 74% of the companies in the industry of Consumer Packaged Goods. Overall, GuruFocus ranks Herbalife Nutrition's profitability as strong. This is the revenue and net income of Herbalife Nutrition over the past years:
Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term performance of a company's stock. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Herbalife Nutrition is 15.5%, which ranks better than 85% of the companies in the industry of Consumer Packaged Goods. The 3-year average EBITDA growth rate is 8.1%, which ranks in the middle range of the companies in the industry of Consumer Packaged Goods.
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, Herbalife Nutrition's return on invested capital is 31.50, and its cost of capital is 6.80. The historical ROIC vs WACC comparison of Herbalife Nutrition is shown below:
To conclude, the stock of Herbalife Nutrition (NYSE:HLF, 30-year Financials) appears to be modestly undervalued. The company's financial condition is poor and its profitability is strong. Its growth ranks in the middle range of the companies in the industry of Consumer Packaged Goods. To learn more about Herbalife Nutrition stock, you can check out its 30-year Financials here.
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