Today, we examine Ameresco Inc (AMRC, Financial), which experienced a daily loss of 6.84% and a 3-month loss of 6.42%. Despite these losses, the company reported Earnings Per Share (EPS) (EPS) of $0.99. The question now is, is the stock modestly undervalued? This article aims to answer this question using a valuation analysis. We invite you to read on to gain a deeper understanding of Ameresco's intrinsic value.
Company Introduction
Ameresco Inc provides energy efficiency solutions for facilities in North America and Europe. It focuses on projects that reduce energy and operation and maintenance costs for governmental, educational, utility, healthcare, and other institutional, commercial, and industrial entities facilities. The company's segment includes U.S. Regions; U.S. Federal; Canada; Alternative Fuels; Non-Solar DG and All Other. The majority of its revenue is derived from the U.S. Regions segment.
As of September 18, 2023, Ameresco's stock price stands at $43.55, with a market cap of $2.30 billion. However, the GF Value, an estimation of the fair value, is $58.76. This discrepancy suggests that the stock might be modestly undervalued.
Understanding GF Value
The GF Value represents the intrinsic value of a stock derived from our exclusive methodology. The GF Value Line on our summary page provides an overview of the fair value at which the stock should ideally be traded. This value is calculated based on three factors:
- Historical multiples (PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow) at which the stock has traded.
- GuruFocus adjustment factor based on the company's past returns and growth.
- Future estimates of the business performance.
Based on these factors, the GF Value Line suggests the fair value at which the stock should be traded. If the stock price is significantly above the GF Value Line, it is 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.
Given Ameresco's current price of $43.55 per share and a market cap of $2.30 billion, the stock appears to be modestly undervalued. As such, the long-term return of its stock is likely to be higher than its business growth.
Financial Strength
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. Ameresco has a cash-to-debt ratio of 0.04, which is worse than 94.28% of 1608 companies in the Construction industry. The overall financial strength of Ameresco is 4 out of 10, which indicates that the financial strength of Ameresco is poor.
Profitability and Growth
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. Ameresco has been profitable 10 years over the past 10 years. During the past 12 months, the company had revenues of $1.40 billion and Earnings Per Share (EPS) of $0.99. Its operating margin of 6.44% is better than 60.89% of 1616 companies in the Construction industry. Overall, GuruFocus ranks Ameresco's profitability as strong.
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 Ameresco is 23.6%, which ranks better than 88.36% of 1555 companies in the Construction industry. The 3-year average EBITDA growth is 22.9%, which ranks better than 78.34% of 1325 companies in the Construction industry.
ROIC vs WACC
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, Ameresco's return on invested capital is 3.69, and its cost of capital is 13.25.
Conclusion
Overall, Ameresco (AMRC, Financial) stock appears to be modestly undervalued. The company's financial condition is poor, but its profitability is strong. Its growth ranks better than 78.34% of 1325 companies in the Construction industry. To learn more about Ameresco stock, you can check out its 30-Year Financials here.
To find out the high-quality companies that may deliver above-average returns, please check out GuruFocus High Quality Low Capex Screener.
