The stock of Mueller Water Products, (NYSE:MWA, 30-year Financials) gives every indication 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 $14.09 per share and the market cap of $2.2 billion, Mueller Water Products, stock is estimated to be modestly overvalued. GF Value for Mueller Water Products, is shown in the chart below.
Because Mueller Water Products, is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth, which averaged 6% over the past three years and is estimated to grow 3.68% 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. Mueller Water Products, has a cash-to-debt ratio of 0.47, which is worse than 68% of the companies in Industrial Products industry. The overall financial strength of Mueller Water Products, is 5 out of 10, which indicates that the financial strength of Mueller Water Products, is fair. This is the debt and cash of Mueller Water Products, over the past years:
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. Mueller Water Products, has been profitable 8 over the past 10 years. Over the past twelve months, the company had a revenue of $988.9 million and earnings of $0.5 a share. Its operating margin is 12.47%, which ranks better than 77% of the companies in Industrial Products industry. Overall, the profitability of Mueller Water Products, is ranked 6 out of 10, which indicates fair profitability. This is the revenue and net income of Mueller Water Products, 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 Mueller Water Products, is 6%, which ranks in the middle range of the companies in Industrial Products industry. The 3-year average EBITDA growth is 8.3%, which ranks in the middle range of the companies in Industrial Products 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, Mueller Water Products,'s return on invested capital is 8.43, and its cost of capital is 9.17. The historical ROIC vs WACC comparison of Mueller Water Products, is shown below:
In short, The stock of Mueller Water Products, (NYSE:MWA, 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 Industrial Products industry. To learn more about Mueller Water Products, stock, you can check out its 30-year Financials here.
To find out the high quality companies that may deliever above average returns, please check out GuruFocus High Quality Low Capex Screener.