The stock of Hoya (OTCPK:HOCPY, 30-year Financials) gives every indication of being 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 $120.96 per share and the market cap of $44.7 billion, Hoya stock is estimated to be significantly overvalued. GF Value for Hoya is shown in the chart below.
Because Hoya is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 7.2% over the past 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. Hoya has a cash-to-debt ratio of 15.94, which is better than 73% of the companies in the industry of Medical Devices & Instruments. GuruFocus ranks the overall financial strength of Hoya at 8 out of 10, which indicates that the financial strength of Hoya is strong. This is the debt and cash of Hoya over the past years:
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Hoya has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $5.1 billion and earnings of $2.882 a share. Its operating margin is 47.53%, which ranks better than 97% of the companies in the industry of Medical Devices & Instruments. Overall, the profitability of Hoya is ranked 9 out of 10, which indicates strong profitability. This is the revenue and net income of Hoya over the past years:
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 performance of a company's stock. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Hoya is 7.2%, which ranks in the middle range of the companies in the industry of Medical Devices & Instruments. The 3-year average EBITDA growth rate is 10.1%, which ranks in the middle range of the companies in the industry of Medical Devices & Instruments.
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, Hoya's return on invested capital is 47.41, and its cost of capital is 3.90. The historical ROIC vs WACC comparison of Hoya is shown below:
In conclusion, The stock of Hoya (OTCPK:HOCPY, 30-year Financials) appears to be significantly overvalued. The company's financial condition is strong and its profitability is strong. Its growth ranks in the middle range of the companies in the industry of Medical Devices & Instruments. To learn more about Hoya stock, you can check out its 30-year Financials here.
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