The stock of Fox Factory Holding (NAS:FOXF, 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 $139.28 per share and the market cap of $5.8 billion, Fox Factory Holding stock appears to be significantly overvalued. GF Value for Fox Factory Holding is shown in the chart below.
Because Fox Factory Holding is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 21.1% over the past five years.
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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. Fox Factory Holding has a cash-to-debt ratio of 0.58, which is in the middle range of the companies in Vehicles & Parts industry. The overall financial strength of Fox Factory Holding is 7 out of 10, which indicates that the financial strength of Fox Factory Holding is fair. This is the debt and cash of Fox Factory Holding over the past years:
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Fox Factory Holding has been profitable 10 years over the past 10 years. During the past 12 months, the company had revenues of $890.6 million and earnings of $2.18 a share. Its operating margin of 12.82% better than 88% of the companies in Vehicles & Parts industry. Overall, GuruFocus ranks Fox Factory Holding's profitability as strong. This is the revenue and net income of Fox Factory Holding over the past years:
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. Fox Factory Holding's 3-year average revenue growth rate is better than 93% of the companies in Vehicles & Parts industry. Fox Factory Holding's 3-year average EBITDA growth rate is 22.1%, which ranks better than 87% of the companies in Vehicles & Parts 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, Fox Factory Holding's ROIC was 12.72, while its WACC came in at 12.51. The historical ROIC vs WACC comparison of Fox Factory Holding is shown below:
Overall, Fox Factory Holding (NAS:FOXF, 30-year Financials) stock is estimated to be significantly overvalued. The company's financial condition is fair and its profitability is strong. Its growth ranks better than 87% of the companies in Vehicles & Parts industry. To learn more about Fox Factory Holding stock, you can check out its 30-year Financials here.
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