With a daily gain of 12.47% and a 3-month gain of 17.17%, Highway Holdings Ltd (HIHO, Financial) has caught the attention of investors. However, the company reported a Loss Per Share of $0.08, raising the question: Is the stock fairly valued? In this article, we will delve into a valuation analysis to answer this question and provide a comprehensive understanding of the company's financial status.
Company Introduction
Highway Holdings Ltd is a holding company primarily engaged in manufacturing metal, plastic, electric, and electronic components for original equipment manufacturers (OEM) and contract manufacturers. The company's operations are divided into two segments: Metal Stamping and Mechanical OEM, and Electric OEM. The majority of its revenue is generated from the former segment and primarily from Europe, although it also has a presence in Hong Kong, China, North America, and other Asian countries.
As of August 25, 2023, the company's stock price stands at $2.3, while the GF Value, an estimation of the stock's fair value, is $2.46. This comparison suggests that Highway Holdings (HIHO, Financial) is fairly valued. The following analysis will delve deeper into the company's value, its financial health, profitability, and growth prospects.
Understanding the GF Value
The GF Value is a unique measure of a stock's intrinsic value, calculated based on historical trading multiples, a GuruFocus adjustment factor considering past returns and growth, and future business performance estimates. The GF Value Line represents the fair value at which the stock should be traded.
Highway Holdings (HIHO, Financial) appears to be fairly valued according to the GF Value calculation. With a market cap of $10.20 million and a stock price of $2.3 per share, the stock's future return is likely to be close to the rate of its business growth, considering its valuation.
Financial Strength
Investing in companies with poor financial strength can lead to a high risk of permanent capital loss. To avoid this, it's crucial to examine a company's financial strength before purchasing shares. The cash-to-debt ratio and interest coverage are excellent indicators of a company's financial health. Highway Holdings has a cash-to-debt ratio of 3.38, ranking better than 66.12% of 2739 companies in the Industrial Products industry. Its overall financial strength is 7 out of 10, indicating fair financial health.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is generally less risky. Highway Holdings has been profitable 7 out of the past 10 years. However, with an operating margin of -4.61%, it ranks worse than 84.65% of 2801 companies in the Industrial Products industry. Overall, the company's profitability is ranked 6 out of 10, indicating fair profitability.
One of the most crucial factors in a company's valuation is its growth. Highway Holdings' average annual revenue growth is -7.8%, ranking worse than 85.72% of 2668 companies in the Industrial Products industry. Its 3-year average EBITDA growth is -31.3%, ranking worse than 93.3% of 2359 companies in the industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) and its weighted average cost of capital (WACC) can provide insights into its profitability. For the past 12 months, Highway Holdings' ROIC was -9.22, and its WACC was 4.31.
Conclusion
In conclusion, Highway Holdings appears to be fairly valued. The company's financial condition and profitability are fair, but its growth ranks worse than 93.3% of 2359 companies in the Industrial Products industry. To learn more about Highway Holdings, you can check out its 30-Year Financials here.
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