The stock of Retail Value (NYSE:RVI, 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 $19.48 per share and the market cap of $410.7 million, Retail Value stock appears to be modestly overvalued. GF Value for Retail Value is shown in the chart below.
Because Retail Value is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth.
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Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. Retail Value has a cash-to-debt ratio of 0.25, which which ranks better than 81% of the companies in REITs industry. The overall financial strength of Retail Value is 4 out of 10, which indicates that the financial strength of Retail Value is poor. This is the debt and cash of Retail Value 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. Retail Value has been profitable 1 years over the past 10 years. During the past 12 months, the company had revenues of $160.9 million and loss of $3.91 a share. Its operating margin of 16.87% worse than 79% of the companies in REITs industry. Overall, GuruFocus ranks Retail Value's profitability as poor. This is the revenue and net income of Retail Value 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. Retail Value's 3-year average revenue growth rate is in the bottom 10% of the companies in REITs industry. Retail Value's 3-year average EBITDA growth rate is 45.8%, which ranks better than 96% of the companies in REITs 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, Retail Value's ROIC was 2.34, while its WACC came in at 8.14. The historical ROIC vs WACC comparison of Retail Value is shown below:
In conclusion, the stock of Retail Value (NYSE:RVI, 30-year Financials) is believed to be modestly overvalued. The company's financial condition is poor and its profitability is poor. Its growth ranks better than 96% of the companies in REITs industry. To learn more about Retail Value stock, you can check out its 30-year Financials here.
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