The stock of Lamar Advertising Co (NAS:LAMR, 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 $103.1 per share and the market cap of $10.4 billion, Lamar Advertising Co stock is estimated to be significantly overvalued. GF Value for Lamar Advertising Co is shown in the chart below.
Because Lamar Advertising Co is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth.
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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. Lamar Advertising Co has a cash-to-debt ratio of 0.01, which is worse than 88% of the companies in REITs industry. GuruFocus ranks the overall financial strength of Lamar Advertising Co at 3 out of 10, which indicates that the financial strength of Lamar Advertising Co is poor. This is the debt and cash of Lamar Advertising Co 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. Lamar Advertising Co has been profitable 10 years over the past 10 years. During the past 12 months, the company had revenues of $1.5 billion and earnings of $2.39 a share. Its operating margin of 25.80% worse than 72% of the companies in REITs industry. Overall, GuruFocus ranks Lamar Advertising Co's profitability as strong. This is the revenue and net income of Lamar Advertising Co 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 performance of a company's stock. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Lamar Advertising Co is -0.3%, which ranks in the middle range of the companies in REITs industry. The 3-year average EBITDA growth rate is -2.3%, which ranks in the middle range of the companies in REITs 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, Lamar Advertising Co's ROIC is 6.61 while its WACC came in at 8.61. The historical ROIC vs WACC comparison of Lamar Advertising Co is shown below:
In closing, the stock of Lamar Advertising Co (NAS:LAMR, 30-year Financials) appears to be significantly overvalued. The company's financial condition is poor and its profitability is strong. Its growth ranks in the middle range of the companies in REITs industry. To learn more about Lamar Advertising Co stock, you can check out its 30-year Financials here.
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