The stock of Herbalife Nutrition (NYSE:HLF, 30-year Financials) appears to be 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 $51.2 per share and the market cap of $5.5 billion, Herbalife Nutrition stock appears to be modestly undervalued. GF Value for Herbalife Nutrition is shown in the chart below.
Because Herbalife Nutrition is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth, which averaged 15.5% over the past five years.
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Since investing in companies with low financial strength could result in permanent capital loss, investors must carefully review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. Herbalife Nutrition has a cash-to-debt ratio of 0.22, which ranks worse than 68% of the companies in the industry of Consumer Packaged Goods. Based on this, GuruFocus ranks Herbalife Nutrition's financial strength as 4 out of 10, suggesting poor balance sheet. This is the debt and cash of Herbalife Nutrition over the past years:
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Herbalife Nutrition has been profitable 10 years over the past 10 years. During the past 12 months, the company had revenues of $5.8 billion and earnings of $3.78 a share. Its operating margin of 13.28% better than 80% of the companies in the industry of Consumer Packaged Goods. Overall, GuruFocus ranks Herbalife Nutrition's profitability as strong. This is the revenue and net income of Herbalife Nutrition over the past years:
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Herbalife Nutrition is 15.5%, which ranks better than 86% of the companies in the industry of Consumer Packaged Goods. The 3-year average EBITDA growth is 8.1%, which ranks in the middle range of the companies in the industry of Consumer Packaged Goods.
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average 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. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Herbalife Nutrition's return on invested capital is 38.74, and its cost of capital is 6.79.
Overall, the stock of Herbalife Nutrition (NYSE:HLF, 30-year Financials) appears to be modestly undervalued. The company's financial condition is poor and its profitability is strong. Its growth ranks in the middle range of the companies in the industry of Consumer Packaged Goods. To learn more about Herbalife Nutrition stock, you can check out its 30-year Financials here.
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