The stock of Fleetcor Technologies (NYSE:FLT, 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 $268.9 per share and the market cap of $22.4 billion, Fleetcor Technologies stock appears to be fairly valued. GF Value for Fleetcor Technologies is shown in the chart below.
Because Fleetcor Technologies is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which averaged 4.7% over the past three years and is estimated to grow 4.47% 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. Fleetcor Technologies has a cash-to-debt ratio of 0.22, which is in the bottom 10% of the companies in Software industry. GuruFocus ranks the overall financial strength of Fleetcor Technologies at 4 out of 10, which indicates that the financial strength of Fleetcor Technologies is poor. This is the debt and cash of Fleetcor Technologies 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. Fleetcor Technologies has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $2.3 billion and earnings of $8.61 a share. Its operating margin is 44.40%, which ranks better than 98% of the companies in Software industry. Overall, GuruFocus ranks the profitability of Fleetcor Technologies at 8 out of 10, which indicates strong profitability. This is the revenue and net income of Fleetcor Technologies 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 Fleetcor Technologies is 4.7%, which ranks in the middle range of the companies in Software industry. The 3-year average EBITDA growth is 2.6%, which ranks worse than 66% of the companies in Software 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, Fleetcor Technologies's ROIC is 8.26 while its WACC came in at 9.06. The historical ROIC vs WACC comparison of Fleetcor Technologies is shown below:
In conclusion, the stock of Fleetcor Technologies (NYSE:FLT, 30-year Financials) gives every indication of being fairly valued. The company's financial condition is poor and its profitability is strong. Its growth ranks worse than 66% of the companies in Software industry. To learn more about Fleetcor Technologies stock, you can check out its 30-year Financials here.
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