The stock of CRA International (NAS:CRAI, 30-year Financials) is believed 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 $76.44 per share and the market cap of $584.4 million, CRA International stock is believed to be significantly overvalued. GF Value for CRA International is shown in the chart below.
Because CRA International is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 13.7% over the past three years and is estimated to grow 8.73% annually over the next three to five years.
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. CRA International has a cash-to-debt ratio of 0.30, which is worse than 71% of the companies in Business Services industry. The overall financial strength of CRA International is 6 out of 10, which indicates that the financial strength of CRA International is fair. This is the debt and cash of CRA International 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. CRA International has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of $508.4 million and earnings of $3.08 a share. Its operating margin is 6.84%, which ranks in the middle range of the companies in Business Services industry. Overall, the profitability of CRA International is ranked 7 out of 10, which indicates fair profitability. This is the revenue and net income of CRA International 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. CRA International's 3-year average revenue growth rate is better than 80% of the companies in Business Services industry. CRA International's 3-year average EBITDA growth rate is 37.4%, which ranks better than 90% of the companies in Business Services industry.
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average 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 return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, CRA International's ROIC is 5.00 while its WACC came in at 9.66. The historical ROIC vs WACC comparison of CRA International is shown below:
To conclude, the stock of CRA International (NAS:CRAI, 30-year Financials) is believed to be significantly overvalued. The company's financial condition is fair and its profitability is fair. Its growth ranks better than 90% of the companies in Business Services industry. To learn more about CRA International stock, you can check out its 30-year Financials here.
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