The stock of M.D.C. Holdings (NYSE:MDC, 30-year Financials) is believed 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 $54.37 per share and the market cap of $3.8 billion, M.D.C. Holdings stock is believed to be modestly overvalued. GF Value for M.D.C. Holdings is shown in the chart below.
Because M.D.C. Holdings is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth, which averaged 12.4% over the past five years.
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. M.D.C. Holdings has a cash-to-debt ratio of 0.60, which which ranks in the middle range of the companies in Homebuilding & Construction industry. The overall financial strength of M.D.C. Holdings is 4 out of 10, which indicates that the financial strength of M.D.C. Holdings is poor. This is the debt and cash of M.D.C. Holdings over the past years:
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. M.D.C. Holdings has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of $4.3 billion and earnings of $6.293 a share. Its operating margin is 12.78%, which ranks better than 72% of the companies in Homebuilding & Construction industry. Overall, the profitability of M.D.C. Holdings is ranked 7 out of 10, which indicates fair profitability. This is the revenue and net income of M.D.C. 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 M.D.C. Holdings is 12.4%, which ranks better than 75% of the companies in Homebuilding & Construction industry. The 3-year average EBITDA growth rate is 25.1%, which ranks better than 82% of the companies in Homebuilding & Construction 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, M.D.C. Holdings's ROIC is 15.83 while its WACC came in at 7.43. The historical ROIC vs WACC comparison of M.D.C. Holdings is shown below:
In summary, the stock of M.D.C. Holdings (NYSE:MDC, 30-year Financials) is believed to be modestly overvalued. The company's financial condition is poor and its profitability is fair. Its growth ranks better than 82% of the companies in Homebuilding & Construction industry. To learn more about M.D.C. Holdings stock, you can check out its 30-year Financials here.
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