The stock of Fortive (NYSE:FTV, 30-year Financials) appears to be modestly 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 $73.46 per share and the market cap of $24.9 billion, Fortive stock shows every sign of being modestly overvalued. GF Value for Fortive is shown in the chart below.
Because Fortive is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth, which is estimated to grow 7.61% annually over the next three to five years.
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It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. Fortive has a cash-to-debt ratio of 0.47, which is worse than 77% of the companies in Hardware industry. The overall financial strength of Fortive is 5 out of 10, which indicates that the financial strength of Fortive is fair. This is the debt and cash of Fortive over the past years:
It is less risky to invest in profitable companies, especially those with consistent profitability over long term. A company with high profit margins is usually a safer investment than those with low profit margins. Fortive has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of $4.2 billion and earnings of $4.58 a share. Its operating margin is 12.73%, which ranks better than 81% of the companies in Hardware industry. Overall, the profitability of Fortive is ranked 6 out of 10, which indicates fair profitability. This is the revenue and net income of Fortive 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 Fortive is -7.5%, which ranks worse than 73% of the companies in Hardware industry. The 3-year average EBITDA growth rate is 15.5%, which ranks better than 67% 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, Fortive's ROIC was 3.74, while its WACC came in at 7.66. The historical ROIC vs WACC comparison of Fortive is shown below:
In closing, the stock of Fortive (NYSE:FTV, 30-year Financials) appears to be modestly overvalued. The company's financial condition is fair and its profitability is fair. Its growth ranks better than 67% of the companies in Hardware industry. To learn more about Fortive stock, you can check out its 30-year Financials here.
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