The stock of The Hershey Co (NYSE:HSY, 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 $174.8 per share and the market cap of $36.2 billion, The Hershey Co stock is believed to be modestly overvalued. GF Value for The Hershey Co is shown in the chart below.
Because The Hershey Co is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth, which averaged 3.4% over the past three years and is estimated to grow 3.32% annually over the next three to five years.
Link: These companies may deliever higher future returns at reduced risk.
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. The Hershey Co has a cash-to-debt ratio of 0.24, which is worse than 66% of the companies in the industry of Consumer Packaged Goods. The overall financial strength of The Hershey Co is 5 out of 10, which indicates that the financial strength of The Hershey Co is fair. This is the debt and cash of The Hershey Co over the past years:
It poses less risk to invest in profitable companies, especially those that have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. The Hershey Co has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $8.4 billion and earnings of $6.72 a share. Its operating margin is 23.47%, which ranks better than 94% of the companies in the industry of Consumer Packaged Goods. Overall, GuruFocus ranks the profitability of The Hershey Co at 9 out of 10, which indicates strong profitability. This is the revenue and net income of The Hershey Co 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 The Hershey Co is 3.4%, which ranks in the middle range of the companies in the industry of Consumer Packaged Goods. The 3-year average EBITDA growth is 10.4%, which ranks in the middle range of the companies in the industry of Consumer Packaged Goods.
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, The Hershey Co’s ROIC was 23.68, while its WACC came in at 3.48. The historical ROIC vs WACC comparison of The Hershey Co is shown below:
In closing, the stock of The Hershey Co (NYSE:HSY, 30-year Financials) is estimated to be modestly overvalued. The company's financial condition is fair and its profitability is strong. Its growth ranks in the middle range of the companies in the industry of Consumer Packaged Goods. To learn more about The Hershey Co stock, you can check out its 30-year Financials here.
To find out the high quality companies that may deliever above average returns, please check out GuruFocus High Quality Low Capex Screener.
