The stock of Westwood Holdings Group (NYSE:WHG, 30-year Financials) appears to be 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 $17.46 per share and the market cap of $147.2 million, Westwood Holdings Group stock gives every indication of being fairly valued. GF Value for Westwood Holdings Group is shown in the chart below.
Because Westwood Holdings Group is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth.
Since investing in companies with low financial strength could result in permanent capital loss, investors must carefully review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. Westwood Holdings Group has a cash-to-debt ratio of 10.53, which ranks in the middle range of the companies in Capital Markets industry. Based on this, GuruFocus ranks Westwood Holdings Group's financial strength as 7 out of 10, suggesting fair balance sheet. This is the debt and cash of Westwood Holdings Group over the past years:
It poses less risk to invest in profitable companies, especially those that have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. Westwood Holdings Group has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of $65.1 million and loss of $1.15 a share. Its operating margin is -1.89%, which ranks worse than 69% of the companies in Capital Markets industry. Overall, GuruFocus ranks the profitability of Westwood Holdings Group at 7 out of 10, which indicates fair profitability. This is the revenue and net income of Westwood Holdings Group 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 Westwood Holdings Group is -20%, which ranks worse than 80% of the companies in Capital Markets industry. The 3-year average EBITDA growth is -67.3%, which ranks in the bottom 10% of the companies in Capital Markets 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, Westwood Holdings Group's return on invested capital is -2.14, and its cost of capital is 10.04. The historical ROIC vs WACC comparison of Westwood Holdings Group is shown below:
Overall, Westwood Holdings Group (NYSE:WHG, 30-year Financials) stock appears to be fairly valued. The company's financial condition is fair and its profitability is fair. Its growth ranks in the bottom 10% of the companies in Capital Markets industry. To learn more about Westwood Holdings Group stock, you can check out its 30-year Financials here.
To find out the high quality companies that may deliever above average returns, please check out GuruFocus High Quality Low Capex Screener.