The stock of Universal Logistics Holdings (NAS:ULH, 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 $25.49 per share and the market cap of $686.2 million, Universal Logistics Holdings stock gives every indication of being modestly overvalued. GF Value for Universal Logistics Holdings is shown in the chart below.
Because Universal Logistics Holdings is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth, which averaged 6.4% over the past 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. Universal Logistics Holdings has a cash-to-debt ratio of 0.04, which ranks in the bottom 10% of the companies in Transportation industry. Based on this, GuruFocus ranks Universal Logistics Holdings's financial strength as 4 out of 10, suggesting poor balance sheet. This is the debt and cash of Universal Logistics Holdings 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. Universal Logistics Holdings has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $1.4 billion and earnings of $2.13 a share. Its operating margin is 6.15%, which ranks in the middle range of the companies in Transportation industry. Overall, GuruFocus ranks the profitability of Universal Logistics Holdings at 8 out of 10, which indicates strong profitability. This is the revenue and net income of Universal Logistics Holdings 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 Universal Logistics Holdings is 6.4%, which ranks better than 72% of the companies in Transportation industry. The 3-year average EBITDA growth rate is 29.7%, which ranks better than 86% of the companies in Transportation 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, Universal Logistics Holdings's ROIC is 7.56 while its WACC came in at 7.01. The historical ROIC vs WACC comparison of Universal Logistics Holdings is shown below:
In closing, the stock of Universal Logistics Holdings (NAS:ULH, 30-year Financials) shows every sign of being modestly overvalued. The company's financial condition is poor and its profitability is strong. Its growth ranks better than 86% of the companies in Transportation industry. To learn more about Universal Logistics Holdings stock, you can check out its 30-year Financials here.
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