Comfort Systems USA Stock Is Estimated To Be Modestly Overvalued

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GF Value
Apr 11, 2021
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The stock of Comfort Systems USA (NYSE:FIX, 30-year Financials) is estimated to be 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 $79.29 per share and the market cap of $2.9 billion, Comfort Systems USA stock gives every indication of being modestly overvalued. GF Value for Comfort Systems USA is shown in the chart below.

Comfort Systems USA GF Value Chart

Because Comfort Systems USA is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth, which averaged 17.9% 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. Comfort Systems USA has a cash-to-debt ratio of 0.17, which which ranks worse than 83% of the companies in Construction industry. The overall financial strength of Comfort Systems USA is 6 out of 10, which indicates that the financial strength of Comfort Systems USA is fair. This is the debt and cash of Comfort Systems USA over the past years:

debt and cash

Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Comfort Systems USA has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of $2.9 billion and earnings of $4.09 a share. Its operating margin is 6.62%, which ranks in the middle range of the companies in Construction industry. Overall, the profitability of Comfort Systems USA is ranked 7 out of 10, which indicates fair profitability. This is the revenue and net income of Comfort Systems USA over the past years:

Revnue and Net Income

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 Comfort Systems USA is 17.9%, which ranks better than 86% of the companies in Construction industry. The 3-year average EBITDA growth rate is 23.6%, which ranks better than 83% of the companies in Construction industry.

Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average 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. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Comfort Systems USA's return on invested capital is 11.15, and its cost of capital is 7.61. The historical ROIC vs WACC comparison of Comfort Systems USA is shown below:

ROIC vs WACC

To conclude, the stock of Comfort Systems USA (NYSE:FIX, 30-year Financials) shows every sign of being modestly overvalued. The company's financial condition is fair and its profitability is fair. Its growth ranks better than 83% of the companies in Construction industry. To learn more about Comfort Systems USA stock, you can check out its 30-year Financials here.

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