The stock of Entegris (NAS:ENTG, 30-year Financials) shows every sign of being significantly 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 $114.63 per share and the market cap of $15.5 billion, Entegris stock shows every sign of being significantly overvalued. GF Value for Entegris is shown in the chart below.
Because Entegris is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 13.4% over the past three years and is estimated to grow 12.11% annually over the next three to five years.
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It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. Entegris has a cash-to-debt ratio of 0.49, which is worse than 77% of the companies in Semiconductors industry. The overall financial strength of Entegris is 6 out of 10, which indicates that the financial strength of Entegris is fair. This is the debt and cash of Entegris 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. Entegris has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $2 billion and earnings of $2.33 a share. Its operating margin is 21.87%, which ranks better than 85% of the companies in Semiconductors industry. Overall, the profitability of Entegris is ranked 8 out of 10, which indicates strong profitability. This is the revenue and net income of Entegris over the past years:
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Entegris is 13.4%, which ranks better than 76% of the companies in Semiconductors industry. The 3-year average EBITDA growth is 21.2%, which ranks better than 68% of the companies in Semiconductors industry.
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, Entegris's return on invested capital is 17.23, and its cost of capital is 8.47. The historical ROIC vs WACC comparison of Entegris is shown below:
In conclusion, the stock of Entegris (NAS:ENTG, 30-year Financials) gives every indication of being significantly overvalued. The company's financial condition is fair and its profitability is strong. Its growth ranks better than 68% of the companies in Semiconductors industry. To learn more about Entegris stock, you can check out its 30-year Financials here.
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