The stock of Ferrari NV (WBO:RACE, 30-year Financials) is estimated 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 €179.7 per share and the market cap of €44.5 billion, Ferrari NV stock shows every sign of being modestly overvalued. GF Value for Ferrari NV is shown in the chart below.
Because Ferrari NV is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth, which averaged 1.2% over the past three years and is estimated to grow 8.45% 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. Ferrari NV has a cash-to-debt ratio of 0.43, which ranks in the middle range of the companies in Vehicles & Parts industry. Based on this, GuruFocus ranks Ferrari NV's financial strength as 5 out of 10, suggesting fair balance sheet. This is the debt and cash of Ferrari NV 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. Ferrari NV has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of €3.5 billion and earnings of €3.49 a share. Its operating margin is 21.93%, which ranks better than 97% of the companies in Vehicles & Parts industry. Overall, the profitability of Ferrari NV is ranked 7 out of 10, which indicates fair profitability. This is the revenue and net income of Ferrari NV 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 Ferrari NV is 1.2%, which ranks in the middle range of the companies in Vehicles & Parts industry. The 3-year average EBITDA growth rate is 4%, which ranks in the middle range of the companies in Vehicles & Parts 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, Ferrari NV's ROIC was 17.15, while its WACC came in at 3.86. The historical ROIC vs WACC comparison of Ferrari NV is shown below:
In closing, Ferrari NV (WBO:RACE, 30-year Financials) stock shows every sign of being modestly overvalued. The company's financial condition is fair and its profitability is fair. Its growth ranks in the middle range of the companies in Vehicles & Parts industry. To learn more about Ferrari NV stock, you can check out its 30-year Financials here.
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