The stock of Saia (NAS:SAIA, 30-year Financials) is believed to be significantly 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 $244.01 per share and the market cap of $6.4 billion, Saia stock is believed to be significantly overvalued. GF Value for Saia is shown in the chart below.
Because Saia is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 8.4% over the past three years and is estimated to grow 9.12% annually over the next three to 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. Saia has a cash-to-debt ratio of 0.30, which is in the middle range of the companies in Transportation industry. GuruFocus ranks the overall financial strength of Saia at 7 out of 10, which indicates that the financial strength of Saia is fair. This is the debt and cash of Saia over the past years:
It poses less risk to invest in profitable companies, especially those that have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. Saia has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $1.9 billion and earnings of $5.54 a share. Its operating margin is 13.02%, which ranks better than 78% of the companies in Transportation industry. Overall, GuruFocus ranks the profitability of Saia at 8 out of 10, which indicates strong profitability. This is the revenue and net income of Saia 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 Saia is 8.4%, which ranks better than 78% of the companies in Transportation industry. The 3-year average EBITDA growth rate is 19.5%, which ranks better than 79% of the companies in Transportation 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, Saia's ROIC is 14.08 while its WACC came in at 9.07.
In summary, the stock of Saia (NAS:SAIA, 30-year Financials) is believed to be significantly overvalued. The company's financial condition is fair and its profitability is strong. Its growth ranks better than 79% of the companies in Transportation industry. To learn more about Saia stock, you can check out its 30-year Financials here.
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