The stock of Knight-Swift Transportation Holdings (NYSE:KNX, 30-year Financials) appears to be 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 $46.79 per share and the market cap of $7.7 billion, Knight-Swift Transportation Holdings stock shows every sign of being modestly overvalued. GF Value for Knight-Swift Transportation Holdings is shown in the chart below.
Because Knight-Swift Transportation Holdings is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth, which averaged 8.1% over the past three years and is estimated to grow 2.47% annually over the next three to five years.
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. Knight-Swift Transportation Holdings has a cash-to-debt ratio of 0.19, which is in the middle range of the companies in Transportation industry. GuruFocus ranks the overall financial strength of Knight-Swift Transportation Holdings at 6 out of 10, which indicates that the financial strength of Knight-Swift Transportation Holdings is fair. This is the debt and cash of Knight-Swift Transportation Holdings 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. Knight-Swift Transportation Holdings has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $4.7 billion and earnings of $2.4 a share. Its operating margin is 12.19%, which ranks better than 76% of the companies in Transportation industry. Overall, the profitability of Knight-Swift Transportation Holdings is ranked 8 out of 10, which indicates strong profitability. This is the revenue and net income of Knight-Swift Transportation Holdings 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. Knight-Swift Transportation Holdings's 3-year average revenue growth rate is better than 75% of the companies in Transportation industry. Knight-Swift Transportation Holdings's 3-year average EBITDA growth rate is 20.1%, which ranks better than 78% of the companies in Transportation 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, Knight-Swift Transportation Holdings's ROIC was 5.26, while its WACC came in at 8.91. The historical ROIC vs WACC comparison of Knight-Swift Transportation Holdings is shown below:
To conclude, the stock of Knight-Swift Transportation Holdings (NYSE:KNX, 30-year Financials) is believed to be modestly overvalued. The company's financial condition is fair and its profitability is strong. Its growth ranks better than 78% of the companies in Transportation industry. To learn more about Knight-Swift Transportation Holdings 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.