Goodman Group Stock Appears To Be Significantly Overvalued

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GF Value
Apr 14, 2021
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The stock of Goodman Group (OTCPK:GMGSF, 30-year Financials) appears to be 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 $14.325 per share and the market cap of $25.8 billion, Goodman Group stock is estimated to be significantly overvalued. GF Value for Goodman Group is shown in the chart below.

Goodman Group GF Value Chart

Because Goodman Group is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth.

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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. Goodman Group has a cash-to-debt ratio of 0.62, which is better than 89% of the companies in REITs industry. The overall financial strength of Goodman Group is 6 out of 10, which indicates that the financial strength of Goodman Group is fair. This is the debt and cash of Goodman Group over the past years:

debt and cash

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. Goodman Group has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $1.4 billion and earnings of $0.669 a share. Its operating margin is 25.75%, which ranks worse than 72% of the companies in REITs industry. Overall, the profitability of Goodman Group is ranked 7 out of 10, which indicates fair profitability. This is the revenue and net income of Goodman Group over the past years:

Revnue and Net Income

Growth is probably one of the most important factors 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. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. Goodman Group's 3-year average revenue growth rate is worse than 73% of the companies in REITs industry. Goodman Group's 3-year average EBITDA growth rate is 12.2%, which ranks better than 82% of the companies in REITs 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, Goodman Group's return on invested capital is 3.25, and its cost of capital is 6.13. The historical ROIC vs WACC comparison of Goodman Group is shown below:


In summary, The stock of Goodman Group (OTCPK:GMGSF, 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 better than 82% of the companies in REITs industry. To learn more about Goodman Group stock, you can check out its 30-year Financials here.

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