The stock of Agilent Technologies (NYSE:A, 30-year Financials) appears 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 $132.12 per share and the market cap of $40.3 billion, Agilent Technologies stock gives every indication of being significantly overvalued. GF Value for Agilent Technologies is shown in the chart below.
Because Agilent Technologies is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 7.6% over the past three years and is estimated to grow 6.67% annually over the next three to five years.
Link: These companies may deliever higher future returns at reduced risk.
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. Agilent Technologies has a cash-to-debt ratio of 0.53, which which ranks better than 100% of the companies in Market Overview industry. The overall financial strength of Agilent Technologies is 6 out of 10, which indicates that the financial strength of Agilent Technologies is fair. This is the debt and cash of Agilent Technologies 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. Agilent Technologies has been profitable 10 years over the past 10 years. During the past 12 months, the company had revenues of $5.5 billion and earnings of $2.6 a share. Its operating margin of 17.34% better than 100% of the companies in Market Overview industry. Overall, GuruFocus ranks Agilent Technologies's profitability as fair. This is the revenue and net income of Agilent Technologies 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 Agilent Technologies is 7.6%, which ranks better than 100% of the companies in Market Overview industry. The 3-year average EBITDA growth rate is 5.5%, which ranks better than 100% of the companies in Market Overview industry.
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted 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 ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Agilent Technologies's ROIC was 10.87, while its WACC came in at 7.05. The historical ROIC vs WACC comparison of Agilent Technologies is shown below:
In summary, The stock of Agilent Technologies (NYSE:A, 30-year Financials) is believed to be significantly overvalued. The company's financial condition is fair and its profitability is fair. Its growth ranks better than 100% of the companies in Market Overview industry. To learn more about Agilent Technologies 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.
