The stock of SBA Communications (NAS:SBAC, 30-year Financials) shows every sign of being 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 $275.69 per share and the market cap of $30.1 billion, SBA Communications stock is estimated to be fairly valued. GF Value for SBA Communications is shown in the chart below.
Because SBA Communications is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which averaged 8.7% over the past three years and is estimated to grow 5.70% annually over the next three to 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. SBA Communications has a cash-to-debt ratio of 0.02, which is worse than 79% of the companies in REITs industry. The overall financial strength of SBA Communications is 2 out of 10, which indicates that the financial strength of SBA Communications is poor. This is the debt and cash of SBA Communications 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. SBA Communications has been profitable 5 years over the past 10 years. During the past 12 months, the company had revenues of $2.1 billion and earnings of $0.2 a share. Its operating margin of 33.09% worse than 67% of the companies in REITs industry. Overall, GuruFocus ranks SBA Communications's profitability as fair. This is the revenue and net income of SBA Communications 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 stock performance of a company. A faster growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of SBA Communications is 8.7%, which ranks better than 83% of the companies in REITs industry. The 3-year average EBITDA growth rate is 2.5%, which ranks in the middle range 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, SBA Communications's return on invested capital is -9.84, and its cost of capital is 1.44. The historical ROIC vs WACC comparison of SBA Communications is shown below:
In short, the stock of SBA Communications (NAS:SBAC, 30-year Financials) gives every indication of being fairly valued. The company's financial condition is poor and its profitability is fair. Its growth ranks in the middle range of the companies in REITs industry. To learn more about SBA Communications stock, you can check out its 30-year Financials here.
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