The stock of Seneca Foods (NAS:SENEA, 30-year Financials) shows every sign of being 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 $46.78 per share and the market cap of $425 million, Seneca Foods stock shows every sign of being modestly overvalued. GF Value for Seneca Foods is shown in the chart below.
Because Seneca Foods is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth, which averaged 4% 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. Seneca Foods has a cash-to-debt ratio of 0.08, which is worse than 83% of the companies in the industry of Consumer Packaged Goods. GuruFocus ranks the overall financial strength of Seneca Foods at 6 out of 10, which indicates that the financial strength of Seneca Foods is fair. This is the debt and cash of Seneca Foods 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. Seneca Foods has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of $1.5 billion and earnings of $14.38 a share. Its operating margin is 11.97%, which ranks better than 76% of the companies in the industry of Consumer Packaged Goods. Overall, the profitability of Seneca Foods is ranked 6 out of 10, which indicates fair profitability. This is the revenue and net income of Seneca Foods 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 Seneca Foods is 4%, which ranks in the middle range of the companies in the industry of Consumer Packaged Goods. The 3-year average EBITDA growth rate is 24.2%, which ranks better than 82% of the companies in the industry of Consumer Packaged Goods.
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, Seneca Foods's ROIC is 18.55 while its WACC came in at 4.61. The historical ROIC vs WACC comparison of Seneca Foods is shown below:
In conclusion, Seneca Foods (NAS:SENEA, 30-year Financials) stock appears to be modestly overvalued. The company's financial condition is fair and its profitability is fair. Its growth ranks better than 82% of the companies in the industry of Consumer Packaged Goods. To learn more about Seneca Foods stock, you can check out its 30-year Financials here.
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