Gray Television Stock Gives Every Indication Of Being Fairly Valued

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Jun 08, 2021
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The stock of Gray Television (NYSE:GTN, 30-year Financials) appears to be 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 $23.17 per share and the market cap of $2.2 billion, Gray Television stock appears to be fairly valued. GF Value for Gray Television is shown in the chart below.

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Because Gray Television is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which averaged 27.2% over the past three years and is estimated to grow 1.54% 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. Gray Television has a cash-to-debt ratio of 0.20, which ranks worse than 79% of the companies in the industry of Media - Diversified. Based on this, GuruFocus ranks Gray Television's financial strength as 4 out of 10, suggesting poor balance sheet. This is the debt and cash of Gray Television over the past years:

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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. Gray Television has been profitable 10 years over the past 10 years. During the past 12 months, the company had revenues of $2.4 billion and earnings of $3.61 a share. Its operating margin of 29.36% better than 94% of the companies in the industry of Media - Diversified. Overall, GuruFocus ranks Gray Television's profitability as strong. This is the revenue and net income of Gray Television over the past years:

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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 Gray Television is 27.2%, which ranks better than 91% of the companies in the industry of Media - Diversified. The 3-year average EBITDA growth rate is 24.4%, which ranks better than 77% of the companies in the industry of Media - Diversified.

Another way to look at the profitability of a company is to compare its return on invested capital and the weighted cost of capital. 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. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, Gray Television's return on invested capital is 8.02, and its cost of capital is 6.07. The historical ROIC vs WACC comparison of Gray Television is shown below:

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To conclude, the stock of Gray Television (NYSE:GTN, 30-year Financials) shows every sign of being fairly valued. The company's financial condition is poor and its profitability is strong. Its growth ranks better than 77% of the companies in the industry of Media - Diversified. To learn more about Gray Television stock, you can check out its 30-year Financials here.

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