The stock of Daito Trust Construction Co (OTCPK:DIFTY, 30-year Financials) shows every sign of being modestly undervalued, 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 $26.95 per share and the market cap of $7.4 billion, Daito Trust Construction Co stock appears to be modestly undervalued. GF Value for Daito Trust Construction Co is shown in the chart below.
Because Daito Trust Construction Co is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth, which averaged 5.5% over the past 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. Daito Trust Construction Co has a cash-to-debt ratio of 1.33, which which ranks better than 77% of the companies in Real Estate industry. The overall financial strength of Daito Trust Construction Co is 7 out of 10, which indicates that the financial strength of Daito Trust Construction Co is fair. This is the debt and cash of Daito Trust Construction Co 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. Daito Trust Construction Co has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $14.6 billion and earnings of $2.854 a share. Its operating margin is 7.56%, which ranks in the middle range of the companies in Real Estate industry. Overall, the profitability of Daito Trust Construction Co is ranked 8 out of 10, which indicates strong profitability. This is the revenue and net income of Daito Trust Construction Co 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 Daito Trust Construction Co is 5.5%, which ranks in the middle range of the companies in Real Estate industry. The 3-year average EBITDA growth rate is 7.4%, which ranks in the middle range of the companies in Real Estate 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, Daito Trust Construction Co's ROIC is 12.21 while its WACC came in at 2.93. The historical ROIC vs WACC comparison of Daito Trust Construction Co is shown below:
In closing, The stock of Daito Trust Construction Co (OTCPK:DIFTY, 30-year Financials) is estimated to be modestly undervalued. The company's financial condition is fair and its profitability is strong. Its growth ranks in the middle range of the companies in Real Estate industry. To learn more about Daito Trust Construction Co stock, you can check out its 30-year Financials here.
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