The stock of The Wendy's Co (NAS:WEN, 30-year Financials) is estimated to be fairly valued, 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 $23.89 per share and the market cap of $5.3 billion, The Wendy's Co stock shows every sign of being fairly valued. GF Value for The Wendy's Co is shown in the chart below.
Because The Wendy's Co is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which averaged 16.2% over the past three years and is estimated to grow 4.37% annually over the next three to five years.
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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. The Wendy's Co has a cash-to-debt ratio of 0.09, which which ranks worse than 82% of the companies in Restaurants industry. The overall financial strength of The Wendy's Co is 3 out of 10, which indicates that the financial strength of The Wendy's Co is poor. This is the debt and cash of The Wendy's Co 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. The Wendy's Co has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $1.8 billion and earnings of $0.63 a share. Its operating margin is 17.77%, which ranks better than 93% of the companies in Restaurants industry. Overall, the profitability of The Wendy's Co is ranked 7 out of 10, which indicates fair profitability. This is the revenue and net income of The Wendy's 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 Wendy's Co is 16.2%, which ranks better than 92% of the companies in Restaurants industry. The 3-year average EBITDA growth is 11.5%, which ranks better than 68% of the companies in Restaurants 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, The Wendy's Co’s return on invested capital is 5.34, and its cost of capital is 5.80. The historical ROIC vs WACC comparison of The Wendy's Co is shown below:
In short, The stock of The Wendy's Co (NAS:WEN, 30-year Financials) is estimated to be fairly valued. The company's financial condition is poor and its profitability is fair. Its growth ranks better than 68% of the companies in Restaurants industry. To learn more about The Wendy's Co stock, you can check out its 30-year Financials here.
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