The stock of Associated Capital Group (NYSE:AC, 30-year Financials) appears 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 $39.06 per share and the market cap of $864 million, Associated Capital Group stock gives every indication of being modestly overvalued. GF Value for Associated Capital Group is shown in the chart below.
Because Associated Capital Group is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth.
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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. Associated Capital Group has a cash-to-debt ratio of 10000.00, which is better than 100% of the companies in Capital Markets industry. GuruFocus ranks the overall financial strength of Associated Capital Group at 7 out of 10, which indicates that the financial strength of Associated Capital Group is fair. This is the debt and cash of Associated Capital Group 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. Associated Capital Group has been profitable 7 years over the past 10 years. During the past 12 months, the company had revenues of $19.4 million and earnings of $4.95 a share. Its operating margin of -96.19% worse than 88% of the companies in Capital Markets industry. Overall, GuruFocus ranks Associated Capital Group’s profitability as poor. This is the revenue and net income of Associated Capital Group 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 Associated Capital Group is -9%, which ranks worse than 69% of the companies in Capital Markets industry. The 3-year average EBITDA growth is 70.4%, which ranks better than 91% of the companies in Capital Markets industry.
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, Associated Capital Group’s ROIC was -1.62, while its WACC came in at 10.02. The historical ROIC vs WACC comparison of Associated Capital Group is shown below:
In conclusion, The stock of Associated Capital Group (NYSE:AC, 30-year Financials) is believed to be modestly overvalued. The company's financial condition is fair and its profitability is poor. Its growth ranks better than 91% of the companies in Capital Markets industry. To learn more about Associated Capital Group stock, you can check out its 30-year Financials here.
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