The stock of Nexstar Media Group (NAS:NXST, 30-year Financials) shows every sign of being fairly valued, 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 $145.99 per share and the market cap of $6.3 billion, Nexstar Media Group stock is estimated to be fairly valued. GF Value for Nexstar Media Group is shown in the chart below.
Because Nexstar Media Group is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which averaged 21.9% over the past three years and is estimated to grow 4.24% annually over the next three to five years.
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Since investing in companies with low financial strength could result in permanent capital loss, investors must carefully review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. Nexstar Media Group has a cash-to-debt ratio of 0.05, which ranks in the bottom 10% of the companies in the industry of Media - Diversified. Based on this, GuruFocus ranks Nexstar Media Group's financial strength as 3 out of 10, suggesting poor balance sheet. This is the debt and cash of Nexstar Media Group 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. Nexstar Media Group has been profitable 8 over the past 10 years. Over the past twelve months, the company had a revenue of $4.5 billion and earnings of $18.6 a share. Its operating margin is 28.64%, which ranks better than 93% of the companies in the industry of Media - Diversified. Overall, GuruFocus ranks the profitability of Nexstar Media Group at 9 out of 10, which indicates strong profitability. This is the revenue and net income of Nexstar Media Group over the past years:
Growth is probably one of the most important factors 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. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. Nexstar Media Group's 3-year average revenue growth rate is better than 89% of the companies in the industry of Media - Diversified. Nexstar Media Group's 3-year average EBITDA growth rate is 32.3%, which ranks better than 83% of the companies in the industry of Media - Diversified.
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, Nexstar Media Group's ROIC is 7.73 while its WACC came in at 7.23. The historical ROIC vs WACC comparison of Nexstar Media Group is shown below:
In short, the stock of Nexstar Media Group (NAS:NXST, 30-year Financials) gives every indication of being fairly valued. The company's financial condition is poor and its profitability is strong. Its growth ranks better than 83% of the companies in the industry of Media - Diversified. To learn more about Nexstar Media Group stock, you can check out its 30-year Financials here.
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