The stock of Jack In The Box (NAS:JACK, 30-year Financials) is believed to be 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 $118.36 per share and the market cap of $2.7 billion, Jack In The Box stock appears to be fairly valued. GF Value for Jack In The Box is shown in the chart below.
Because Jack In The Box is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which averaged 7.3% over the past three years and is estimated to grow 3.43% annually over the next three to five years.
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Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. Jack In The Box has a cash-to-debt ratio of 0.11, which which ranks worse than 78% of the companies in Restaurants industry. The overall financial strength of Jack In The Box is 3 out of 10, which indicates that the financial strength of Jack In The Box is poor. This is the debt and cash of Jack In The Box 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. Jack In The Box has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $1.1 billion and earnings of $5.77 a share. Its operating margin is 23.57%, which ranks better than 97% of the companies in Restaurants industry. Overall, the profitability of Jack In The Box is ranked 7 out of 10, which indicates fair profitability. This is the revenue and net income of Jack In The Box 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 Jack In The Box is 7.3%, which ranks better than 77% of the companies in Restaurants industry. The 3-year average EBITDA growth rate is 1.2%, which ranks in the middle range of the companies in Restaurants industry.
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, Jack In The Box's ROIC is 10.44 while its WACC came in at 9.18. The historical ROIC vs WACC comparison of Jack In The Box is shown below:
To conclude, The stock of Jack In The Box (NAS:JACK, 30-year Financials) appears to be fairly valued. The company's financial condition is poor and its profitability is fair. Its growth ranks in the middle range of the companies in Restaurants industry. To learn more about Jack In The Box stock, you can check out its 30-year Financials here.
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