Universal Logistics Holdings Stock Appears To Be Fairly Valued

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Apr 22, 2021
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The stock of Universal Logistics Holdings (NAS:ULH, 30-year Financials) gives every indication of being fairly valued, 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 $23.25 per share and the market cap of $625.9 million, Universal Logistics Holdings stock appears to be fairly valued. GF Value for Universal Logistics Holdings is shown in the chart below.

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Because Universal Logistics Holdings is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which averaged 6.4% 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. Universal Logistics Holdings has a cash-to-debt ratio of 0.03, which is in the bottom 10% of the companies in Transportation industry. The overall financial strength of Universal Logistics Holdings is 4 out of 10, which indicates that the financial strength of Universal Logistics Holdings is poor. This is the debt and cash of Universal Logistics Holdings over the past years:

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It poses less risk to invest in profitable companies, especially those that have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. Universal Logistics Holdings 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 $1.78 a share. Its operating margin is 5.78%, which ranks in the middle range of the companies in Transportation industry. Overall, GuruFocus ranks the profitability of Universal Logistics Holdings at 8 out of 10, which indicates strong profitability. This is the revenue and net income of Universal Logistics Holdings over the past years:

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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 Universal Logistics Holdings is 6.4%, which ranks better than 69% of the companies in Transportation industry. The 3-year average EBITDA growth rate is 29.7%, which ranks better than 87% of the companies in Transportation industry.

Another way to look at the profitability of a company is to compare its return on invested capital and the weighted 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. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, Universal Logistics Holdings's return on invested capital is 7.00, and its cost of capital is 7.08. The historical ROIC vs WACC comparison of Universal Logistics Holdings is shown below:

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To conclude, The stock of Universal Logistics Holdings (NAS:ULH, 30-year Financials) gives every indication of being fairly valued. The company's financial condition is poor and its profitability is strong. Its growth ranks better than 87% of the companies in Transportation industry. To learn more about Universal Logistics Holdings stock, you can check out its 30-year Financials here.

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