The stock of President Chain Store (TPE:2912, 30-year Financials) is estimated 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 NT$272 per share and the market cap of NT$282.8 billion, President Chain Store stock is believed to be modestly undervalued. GF Value for President Chain Store is shown in the chart below.
Because President Chain Store is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth, which averaged 5.4% over the past three years and is estimated to grow 3.56% 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. President Chain Store has a cash-to-debt ratio of 0.54, which is in the middle range of the companies in the industry of Retail - Defensive. GuruFocus ranks the overall financial strength of President Chain Store at 5 out of 10, which indicates that the financial strength of President Chain Store is fair. This is the debt and cash of President Chain Store 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. President Chain Store has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of NT$260.5 billion and earnings of NT$9.98 a share. Its operating margin is 4.68%, which ranks better than 69% of the companies in the industry of Retail - Defensive. Overall, GuruFocus ranks the profitability of President Chain Store at 7 out of 10, which indicates fair profitability. This is the revenue and net income of President Chain Store 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 President Chain Store is 5.4%, which ranks in the middle range of the companies in the industry of Retail - Defensive. The 3-year average EBITDA growth is -9.1%, which ranks worse than 84% of the companies in the industry of Retail - Defensive.
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, President Chain Store's ROIC is 6.61 while its WACC came in at 1.09. The historical ROIC vs WACC comparison of President Chain Store is shown below:
To conclude, the stock of President Chain Store (TPE:2912, 30-year Financials) appears to be modestly undervalued. The company's financial condition is fair and its profitability is fair. Its growth ranks worse than 84% of the companies in the industry of Retail - Defensive. To learn more about President Chain Store stock, you can check out its 30-year Financials here.
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