The stock of The Interpublic Group of (NYSE:IPG, 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 $33.52 per share and the market cap of $13.2 billion, The Interpublic Group of stock appears to be significantly overvalued. GF Value for The Interpublic Group of is shown in the chart below.
Because The Interpublic Group of is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 0.4% over the past five years.
Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Thus, it is important to carefully review the financial strength of a company before deciding whether to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company. The Interpublic Group of has a cash-to-debt ratio of 0.39, which is worse than 68% of the companies in the industry of Media - Diversified. GuruFocus ranks the overall financial strength of The Interpublic Group of at 4 out of 10, which indicates that the financial strength of The Interpublic Group of is poor. This is the debt and cash of The Interpublic Group of over the past years:
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. The Interpublic Group of has been profitable 10 years over the past 10 years. During the past 12 months, the company had revenues of $9 billion and earnings of $1.1 a share. Its operating margin of 13.07% better than 77% of the companies in the industry of Media - Diversified. Overall, GuruFocus ranks The Interpublic Group of's profitability as fair. This is the revenue and net income of The Interpublic Group of 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 The Interpublic Group of is 0.4%, which ranks in the middle range of the companies in the industry of Media - Diversified. The 3-year average EBITDA growth rate is -7.8%, which ranks in the middle range 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, The Interpublic Group of's return on invested capital is 11.07, and its cost of capital is 6.89. The historical ROIC vs WACC comparison of The Interpublic Group of is shown below:
To conclude, The stock of The Interpublic Group of (NYSE:IPG, 30-year Financials) appears to be significantly overvalued. The company's financial condition is poor and its profitability is fair. Its growth ranks in the middle range of the companies in the industry of Media - Diversified. To learn more about The Interpublic Group of stock, you can check out its 30-year Financials here.
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