The stock of Ennis (NYSE:EBF, 30-year Financials) gives every indication of being 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 $20.67 per share and the market cap of $538.9 million, Ennis stock is believed to be modestly overvalued. GF Value for Ennis is shown in the chart below.
Because Ennis is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth, which averaged 6.7% over the past five years.
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. Ennis has a cash-to-debt ratio of 5.64, which ranks better than 73% of the companies in Industrial Products industry. Based on this, GuruFocus ranks Ennis's financial strength as 9 out of 10, suggesting strong balance sheet. This is the debt and cash of Ennis 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. Ennis has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of $374.8 million and earnings of $1.06 a share. Its operating margin is 9.78%, which ranks better than 68% of the companies in Industrial Products industry. Overall, the profitability of Ennis is ranked 7 out of 10, which indicates fair profitability. This is the revenue and net income of Ennis 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 Ennis is 6.7%, which ranks in the middle range of the companies in Industrial Products industry. The 3-year average EBITDA growth is 9.2%, which ranks in the middle range of the companies in Industrial Products industry.
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). 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. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Ennis's ROIC was 10.22, while its WACC came in at 5.08. The historical ROIC vs WACC comparison of Ennis is shown below:
In closing, the stock of Ennis (NYSE:EBF, 30-year Financials) gives every indication of being modestly overvalued. The company's financial condition is strong and its profitability is fair. Its growth ranks in the middle range of the companies in Industrial Products industry. To learn more about Ennis stock, you can check out its 30-year Financials here.
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