Vectrus Stock Shows Every Sign Of Being Modestly Overvalued

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GF Value
Apr 17, 2021
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The stock of Vectrus (NYSE:VEC, 30-year Financials) shows every sign 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 $51.96 per share and the market cap of $607.7 million, Vectrus stock shows every sign of being modestly overvalued. GF Value for Vectrus is shown in the chart below.

Vectrus GF Value Chart

Because Vectrus is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth, which averaged 6.1% 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. Vectrus has a cash-to-debt ratio of 0.34, which is in the middle range of the companies in Aerospace & Defense industry. The overall financial strength of Vectrus is 6 out of 10, which indicates that the financial strength of Vectrus is fair. This is the debt and cash of Vectrus 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. Vectrus 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 $3.13 a share. Its operating margin is 3.12%, which ranks in the middle range of the companies in Aerospace & Defense industry. Overall, the profitability of Vectrus is ranked 7 out of 10, which indicates fair profitability. This is the revenue and net income of Vectrus over the past years:

Revnue and Net Income

Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term stock performance of a company. A faster growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Vectrus is 6.1%, which ranks in the middle range of the companies in Aerospace & Defense industry. The 3-year average EBITDA growth rate is 4.8%, which ranks in the middle range of the companies in Aerospace & Defense 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, Vectrus's ROIC is 8.87 while its WACC came in at 9.55. The historical ROIC vs WACC comparison of Vectrus is shown below:

ROIC vs WACC

In summary, the stock of Vectrus (NYSE:VEC, 30-year Financials) gives every indication of being modestly overvalued. The company's financial condition is fair and its profitability is fair. Its growth ranks in the middle range of the companies in Aerospace & Defense industry. To learn more about Vectrus stock, you can check out its 30-year Financials here.

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