John B Sanfilippo & Son Inc (JBSS, Financial) has recently experienced a daily gain of 6.41%, despite a 3-month loss of 11.56%. With Earnings Per Share (EPS) standing at 5.4, the burning question is whether the stock is modestly overvalued. This article aims to provide a detailed valuation analysis of JBSS, offering insights into its financial strength, profitability, and growth prospects.
Company Overview
John B Sanfilippo & Son Inc is a leading processor and distributor of various nuts in the United States. The company's products are sold under several private brands, including Fisher, Orchard Valley Harvest, and Sunshine Country. In addition to nuts, the company also manufactures and distributes a diverse range of food and snack products. At a stock price of $105.46, JBSS has a market cap of $1.20 billion, indicating a modest overvaluation according to the GF Value.
Understanding GF Value
The GF Value is a proprietary measure that estimates the intrinsic value of a stock. It is calculated based on historical multiples, an adjustment factor based on the company's past performance and growth, and future business performance estimates. If the stock price is significantly above the GF Value Line, it is considered overvalued and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
Based on this valuation method, John B Sanfilippo & Son (JBSS, Financial) appears to be modestly overvalued. As a result, the long-term return of its stock is likely to be lower than its business growth.
Assessing Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it is crucial to review a company's financial strength before deciding to buy shares. John B Sanfilippo & Son has a cash-to-debt ratio of 0.15, which ranks worse than 71.39% of 1793 companies in the Consumer Packaged Goods industry. Despite this, GuruFocus ranks John B Sanfilippo & Son's financial strength as 8 out of 10, suggesting a strong balance sheet.
Profitability and Growth
Investing in profitable companies carries less risk. John B Sanfilippo & Son has been profitable 10 years over the past 10 years. Its operating margin of 8.75% is better than 68.77% of 1809 companies in the Consumer Packaged Goods industry. However, the 3-year average annual revenue growth of John B Sanfilippo & Son is 4%, which ranks worse than 58.68% of 1711 companies in the same industry. The 3-year average EBITDA growth rate is 4.9%, which ranks worse than 52.38% of 1512 companies in the industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can also evaluate a company's profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. 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 exceeds the WACC, the company is likely creating value for its shareholders. During the past 12 months, John B Sanfilippo & Son's ROIC is 18.06 while its WACC came in at 7.54.
Conclusion
In conclusion, John B Sanfilippo & Son (JBSS, Financial) appears to be modestly overvalued. The company's financial condition is strong and its profitability is strong. However, its growth ranks worse than 52.38% of 1512 companies in the Consumer Packaged Goods industry. For more detailed financial information about John B Sanfilippo & Son, you can check out its 30-Year Financials here.
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