The stock of Altra Industrial Motion (NAS:AIMC, 30-year Financials) gives every indication of being significantly 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 $60.8 per share and the market cap of $3.9 billion, Altra Industrial Motion stock is believed to be significantly overvalued. GF Value for Altra Industrial Motion is shown in the chart below.
Because Altra Industrial Motion is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which is estimated to grow 2.45% annually over the next three to five years.
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. Altra Industrial Motion has a cash-to-debt ratio of 0.17, which is worse than 87% of the companies in Industrial Products industry. The overall financial strength of Altra Industrial Motion is 5 out of 10, which indicates that the financial strength of Altra Industrial Motion is fair. This is the debt and cash of Altra Industrial Motion over the past years:
It is less risky to invest in profitable companies, especially those with consistent profitability over long term. A company with high profit margins is usually a safer investment than those with low profit margins. Altra Industrial Motion has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of $1.7 billion and loss of $0.4 a share. Its operating margin is 13.46%, which ranks better than 80% of the companies in Industrial Products industry. Overall, the profitability of Altra Industrial Motion is ranked 7 out of 10, which indicates fair profitability. This is the revenue and net income of Altra Industrial Motion 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 Altra Industrial Motion is -3.9%, which ranks worse than 74% of the companies in Industrial Products industry. The 3-year average EBITDA growth rate is -7.2%, which ranks worse than 72% of the companies in Industrial Products 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, Altra Industrial Motion's return on invested capital is -39.50, and its cost of capital is 9.05. The historical ROIC vs WACC comparison of Altra Industrial Motion is shown below:
In conclusion, the stock of Altra Industrial Motion (NAS:AIMC, 30-year Financials) shows every sign of being significantly overvalued. The company's financial condition is fair and its profitability is fair. Its growth ranks worse than 72% of the companies in Industrial Products industry. To learn more about Altra Industrial Motion stock, you can check out its 30-year Financials here.
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