Stantec Inc (STN, Financial) has experienced a notable daily gain of 8.98%, with a 3-month gain of 5.65%. With an Earnings Per Share (EPS) of $1.97, investors may wonder if the stock is significantly overvalued. This article delves into the valuation analysis of Stantec, offering insights into whether its current market price reflects its true value. Read on for a comprehensive analysis of Stantec's intrinsic value.
Company Introduction
Stantec Inc (STN, Financial) is a sustainable engineering, architecture, and environmental consulting firm with a diverse geographical presence across Canada, the United States, and globally. The company provides a range of services across various sectors, supporting projects from planning and design to maintenance and remediation. With a current stock price of $68.7 and a GF Value of $50.26, there appears to be a discrepancy between the market price and the estimated fair value, suggesting that the stock might be significantly overvalued.
Summarize GF Value
The GF Value is a proprietary measure that reflects the intrinsic value of a stock. It is calculated by considering historical trading multiples, a GuruFocus adjustment factor based on the company's past performance and growth, and future business performance estimates. When the stock price greatly exceeds the GF Value Line, the stock is likely overvalued, which may result in poor future returns. Conversely, when the stock price is well below this line, it could indicate an undervalued stock with potential for higher future returns. Currently, Stantec's stock price of $68.7 per share is significantly above the GF Value, suggesting an overvaluation.
Given this significant overvaluation, there is a possibility that the long-term return of Stantec's stock could be much lower than its future business growth prospects.
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Financial Strength
Investing in companies with robust financial strength is crucial to minimize the risk of permanent capital loss. Key indicators such as the cash-to-debt ratio and interest coverage can provide insight into a company's financial resilience. Stantec's cash-to-debt ratio stands at 0.1, which is lower than the majority of its peers in the Construction industry. With a financial strength ranking of 6 out of 10, Stantec's financial condition is deemed fair.
Profitability and Growth
A consistent track record of profitability is often a sign of a less risky investment. Stantec has achieved profitability for the past decade, with a 12-month revenue of $4.60 billion and an Earnings Per Share (EPS) of $1.97. Its operating margin of 5.75% ranks it above more than half of its competitors in the Construction industry. Stantec's profitability is strong, with a rank of 8 out of 10.
The company's growth is also an essential aspect of its valuation. Stantec's 3-year average revenue growth rate surpasses 57.58% of companies in the Construction industry, and its 3-year average EBITDA growth rate of 5.5% is better than 52.68% of its peers.
ROIC vs. WACC
Comparing a company's Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC) is another way to assess profitability. Ideally, a company's ROIC should exceed its WACC to indicate value creation for shareholders. Over the past 12 months, Stantec's ROIC was 5.45, which is below its WACC of 7.34, suggesting that the company may not be generating adequate cash flow relative to the capital invested.
Conclusion
In summary, Stantec (STN, Financial) appears to be significantly overvalued when considering its current market price. Despite having fair financial strength and robust profitability, its valuation raises questions about the potential for future returns. To gain a deeper understanding of Stantec's financial health and prospects, investors can explore its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
