The stock of GP Strategies (NYSE:GPX, 30-year Financials) appears to be 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 $16 per share and the market cap of $279.1 million, GP Strategies stock is believed to be significantly overvalued. GF Value for GP Strategies is shown in the chart below.
Because GP Strategies is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth.
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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. GP Strategies has a cash-to-debt ratio of 0.55, which which ranks worse than 70% of the companies in Education industry. The overall financial strength of GP Strategies is 6 out of 10, which indicates that the financial strength of GP Strategies is fair. This is the debt and cash of GP Strategies 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. GP Strategies has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $459.4 million and earnings of $0.55 a share. Its operating margin is 2.84%, which ranks worse than 66% of the companies in Education industry. Overall, the profitability of GP Strategies is ranked 7 out of 10, which indicates fair profitability. This is the revenue and net income of GP Strategies over the past years:
Growth is probably one of the most important factors in the valuation of a company. GuruFocus' research has found that growth is closely correlated with the long-term performance of a company's stock. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. GP Strategies's 3-year average revenue growth rate is worse than 72% of the companies in Education industry. GP Strategies's 3-year average EBITDA growth rate is -14.2%, which ranks worse than 83% of the companies in Education industry.
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average 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. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, GP Strategies's return on invested capital is 3.49, and its cost of capital is 10.17. The historical ROIC vs WACC comparison of GP Strategies is shown below:
To conclude, the stock of GP Strategies (NYSE:GPX, 30-year Financials) appears to be significantly overvalued. The company's financial condition is fair and its profitability is fair. Its growth ranks worse than 83% of the companies in Education industry. To learn more about GP Strategies stock, you can check out its 30-year Financials here.
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