The stock of Restaurant Brands International (NYSE:QSR, 30-year Financials) appears 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 $64.32 per share and the market cap of $19.6 billion, Restaurant Brands International stock is estimated to be fairly valued. GF Value for Restaurant Brands International is shown in the chart below.
Because Restaurant Brands International is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which averaged 3.5% over the past three years and is estimated to grow 7.63% annually over the next three to five years.
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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. Restaurant Brands International has a cash-to-debt ratio of 0.11, which is worse than 77% of the companies in Restaurants industry. The overall financial strength of Restaurant Brands International is 3 out of 10, which indicates that the financial strength of Restaurant Brands International is poor. This is the debt and cash of Restaurant Brands International 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. Restaurant Brands International has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of $5 billion and earnings of $1.7 a share. Its operating margin is 32.06%, which ranks better than 97% of the companies in Restaurants industry. Overall, the profitability of Restaurant Brands International is ranked 7 out of 10, which indicates fair profitability. This is the revenue and net income of Restaurant Brands International 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. Restaurant Brands International’s 3-year average revenue growth rate is better than 78% of the companies in Restaurants industry. Restaurant Brands International’s 3-year average EBITDA growth rate is -5.1%, which ranks in the middle range of the companies in Restaurants 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, Restaurant Brands International’s return on invested capital is 7.12, and its cost of capital is 6.50. The historical ROIC vs WACC comparison of Restaurant Brands International is shown below:
Overall, Restaurant Brands International (NYSE:QSR, 30-year Financials) stock shows every sign of being fairly valued. The company's financial condition is poor and its profitability is fair. Its growth ranks in the middle range of the companies in Restaurants industry. To learn more about Restaurant Brands International stock, you can check out its 30-year Financials here.
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