The stock of Beazer Homes USA (NYSE:BZH, 30-year Financials) is estimated 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 $19.45 per share and the market cap of $607.7 million, Beazer Homes USA stock appears to be significantly overvalued. GF Value for Beazer Homes USA is shown in the chart below.
Because Beazer Homes USA is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 6.3% over the past three years and is estimated to grow 7.38% annually over the next three to 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. Beazer Homes USA has a cash-to-debt ratio of 0.21, which is worse than 74% of the companies in Homebuilding & Construction industry. The overall financial strength of Beazer Homes USA is 3 out of 10, which indicates that the financial strength of Beazer Homes USA is poor. This is the debt and cash of Beazer Homes USA 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. Beazer Homes USA has been profitable 5 years over the past 10 years. During the past 12 months, the company had revenues of $2.1 billion and earnings of $2.05 a share. Its operating margin of 4.34% worse than 73% of the companies in Homebuilding & Construction industry. Overall, GuruFocus ranks Beazer Homes USA's profitability as fair. This is the revenue and net income of Beazer Homes USA 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. Beazer Homes USA's 3-year average revenue growth rate is in the middle range of the companies in Homebuilding & Construction industry. Beazer Homes USA's 3-year average EBITDA growth rate is 10.5%, which ranks in the middle range of the companies in Homebuilding & Construction 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, Beazer Homes USA's ROIC is 4.15 while its WACC came in at 5.27. The historical ROIC vs WACC comparison of Beazer Homes USA is shown below:
In conclusion, the stock of Beazer Homes USA (NYSE:BZH, 30-year Financials) shows every sign of being significantly overvalued. The company's financial condition is poor and its profitability is fair. Its growth ranks in the middle range of the companies in Homebuilding & Construction industry. To learn more about Beazer Homes USA stock, you can check out its 30-year Financials here.
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