The stock of Teledyne Technologies (NYSE:TDY, 30-year Financials) is estimated 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 $422.16 per share and the market cap of $19.6 billion, Teledyne Technologies stock is believed to be significantly overvalued. GF Value for Teledyne Technologies is shown in the chart below.
Because Teledyne Technologies is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 4.3% over the past five years.
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. Teledyne Technologies has a cash-to-debt ratio of 0.96, which is in the middle range of the companies in Hardware industry. GuruFocus ranks the overall financial strength of Teledyne Technologies at 6 out of 10, which indicates that the financial strength of Teledyne Technologies is fair. This is the debt and cash of Teledyne 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. Teledyne Technologies has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $3.1 billion and earnings of $10.67 a share. Its operating margin is 16.45%, which ranks better than 88% of the companies in Hardware industry. Overall, GuruFocus ranks the profitability of Teledyne Technologies at 9 out of 10, which indicates strong profitability. This is the revenue and net income of Teledyne 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 Teledyne Technologies is 4.3%, which ranks in the middle range of the companies in Hardware industry. The 3-year average EBITDA growth rate is 10%, which ranks in the middle range of the companies in Hardware 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, Teledyne Technologies's ROIC was 11.82, while its WACC came in at 7.96. The historical ROIC vs WACC comparison of Teledyne Technologies is shown below:
In summary, the stock of Teledyne Technologies (NYSE:TDY, 30-year Financials) is believed to be significantly overvalued. The company's financial condition is fair and its profitability is strong. Its growth ranks in the middle range of the companies in Hardware industry. To learn more about Teledyne Technologies stock, you can check out its 30-year Financials here.
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