The stock of Vestas Wind Systems A/S (OTCPK:VWDRY, 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 $65.79 per share and the market cap of $39.7 billion, Vestas Wind Systems A/S stock appears to be significantly overvalued. GF Value for Vestas Wind Systems A/S is shown in the chart below.
Because Vestas Wind Systems A/S is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 17.2% over the past three years and is estimated to grow 3.52% annually over the next three to five years.
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Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Thus, it is important to carefully review the financial strength of a company before deciding whether to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company. Vestas Wind Systems A/S has a cash-to-debt ratio of 2.33, which is in the middle range of the companies in Industrial Products industry. GuruFocus ranks the overall financial strength of Vestas Wind Systems A/S at 7 out of 10, which indicates that the financial strength of Vestas Wind Systems A/S is fair. This is the debt and cash of Vestas Wind Systems A/S 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. Vestas Wind Systems A/S has been profitable 7 years over the past 10 years. During the past 12 months, the company had revenues of $17.3 billion and earnings of $1.573 a share. Its operating margin of 5.05% in the middle range of the companies in Industrial Products industry. Overall, GuruFocus ranks Vestas Wind Systems A/S's profitability as fair. This is the revenue and net income of Vestas Wind Systems A/S 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 Vestas Wind Systems A/S is 17.2%, which ranks better than 86% of the companies in Industrial Products industry. The 3-year average EBITDA growth is 3.3%, which ranks in the middle range of the companies in Industrial Products 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, Vestas Wind Systems A/S's ROIC was 5.65, while its WACC came in at 8.43. The historical ROIC vs WACC comparison of Vestas Wind Systems A/S is shown below:
In short, Vestas Wind Systems A/S (OTCPK:VWDRY, 30-year Financials) stock is estimated to be significantly 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 Vestas Wind Systems A/S stock, you can check out its 30-year Financials here.
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