The stock of Matson (NYSE:MATX, 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 $69.6 per share and the market cap of $3 billion, Matson stock is believed to be significantly overvalued. GF Value for Matson is shown in the chart below.
Because Matson is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 5% over the past five years.
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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. Matson has a cash-to-debt ratio of 0.01, which ranks in the bottom 10% of the companies in Transportation industry. Based on this, GuruFocus ranks Matson's financial strength as 4 out of 10, suggesting poor balance sheet. This is the debt and cash of Matson over the past years:
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. Matson has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $2.4 billion and earnings of $4.44 a share. Its operating margin is 10.66%, which ranks better than 73% of the companies in Transportation industry. Overall, the profitability of Matson is ranked 8 out of 10, which indicates strong profitability. This is the revenue and net income of Matson 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 Matson is 5%, which ranks in the middle range of the companies in Transportation industry. The 3-year average EBITDA growth is 23.6%, which ranks better than 83% of the companies in Transportation 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, Matson's ROIC was 6.94, while its WACC came in at 5.70. The historical ROIC vs WACC comparison of Matson is shown below:
In short, Matson (NYSE:MATX, 30-year Financials) stock is estimated to be significantly overvalued. The company's financial condition is poor and its profitability is strong. Its growth ranks better than 83% of the companies in Transportation industry. To learn more about Matson stock, you can check out its 30-year Financials here.
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