The stock of Tesco PLC (OTCPK:TSCDY, 30-year Financials) is estimated 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 $9.2399 per share and the market cap of $23.8 billion, Tesco PLC stock appears to be fairly valued. GF Value for Tesco PLC is shown in the chart below.
Because Tesco PLC is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth.
Link: These companies may deliever higher future returns at reduced risk.
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. Tesco PLC has a cash-to-debt ratio of 0.23, which is in the middle range of the companies in the industry of Retail - Defensive. GuruFocus ranks the overall financial strength of Tesco PLC at 5 out of 10, which indicates that the financial strength of Tesco PLC is fair. This is the debt and cash of Tesco PLC 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. Tesco PLC has been profitable 8 over the past 10 years. Over the past twelve months, the company had a revenue of $78.2 billion and earnings of $2.634 a share. Its operating margin is 4.33%, which ranks in the middle range of the companies in the industry of Retail - Defensive. Overall, the profitability of Tesco PLC is ranked 5 out of 10, which indicates fair profitability. This is the revenue and net income of Tesco PLC 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 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 Tesco PLC is -12.3%, which ranks worse than 89% of the companies in the industry of Retail - Defensive. The 3-year average EBITDA growth rate is -9.8%, which ranks worse than 85% of the companies in the industry of Retail - Defensive.
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, Tesco PLC's ROIC is 4.85 while its WACC came in at 4.54. The historical ROIC vs WACC comparison of Tesco PLC is shown below:
In short, the stock of Tesco PLC (OTCPK:TSCDY, 30-year Financials) is believed to be fairly valued. The company's financial condition is fair and its profitability is fair. Its growth ranks worse than 85% of the companies in the industry of Retail - Defensive. To learn more about Tesco PLC 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.
