The AZEK Co Inc (AZEK, Financial) recently exhibited a daily gain of 5.99%, modestly adding to its 3-month gain of 0.27%. With an Earnings Per Share (EPS) of $0.45, investors are keenly observing its stock valuation. The critical question arises: is The AZEK Co fairly valued in the current market? This article delves into the valuation analysis of The AZEK Co, offering investors a comprehensive look at its financial health and intrinsic value.
Company Introduction
The AZEK Co Inc (AZEK, Financial) stands out as a designer and manufacturer of aesthetically pleasing, low maintenance, and environmentally sustainable products in the burgeoning Outdoor Living market. Its diverse product portfolio includes decks, railings, trims, and other outdoor living essentials. The company operates mainly through its Residential segment, which contributes the majority of its revenue. With a market cap of $4.90 billion and a stock price of $33.43, compared to the GuruFocus Fair Value (GF Value) of $32.62, a close examination of The AZEK Co's valuation is warranted to determine if its stock is trading at a fair price.
Summarize GF Value
The GF Value is a proprietary metric that reflects the intrinsic value of a stock, based on historical trading multiples, an adjustment factor from GuruFocus for past performance and growth, and future business performance projections. This GF Value Line serves as a benchmark for what the stock should ideally trade at. If a stock's price significantly exceeds the GF Value Line, it may be overvalued, suggesting a potential decrease in future returns. Conversely, if the price is well below the GF Value Line, it could indicate undervaluation and the potential for higher future returns.
According to GuruFocus's valuation methods, The AZEK Co (AZEK, Financial) is currently fairly valued. This estimation is grounded in the historical trading multiples, the company's past business growth, and projected future performance. With the stock price hovering around the GF Value Line, the expected long-term return of The AZEK Co's stock should align closely with the company's business growth rate.
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Financial Strength
Assessing a company's financial strength is critical to avoid the high risk of permanent capital loss. Key indicators such as the cash-to-debt ratio, which for The AZEK Co stands at 0.36, provide insights into a company's financial robustness. Although this ratio positions The AZEK Co lower than 62.76% of its peers in the Construction industry, its overall financial strength score of 6 out of 10 suggests that the company's financial situation is fair.
Profitability and Growth
Investing in profitable companies, especially those with a history of consistent profitability, generally carries less risk. The AZEK Co has been profitable for 3 out of the past 10 years. The past 12 months have seen revenues of $1.40 billion and an Earnings Per Share (EPS) of $0.45, with an operating margin of 5.53% that outperforms 52.97% of its industry counterparts. Despite this, GuruFocus classifies The AZEK Co's profitability as poor, highlighting the importance of considering other growth metrics.
The 3-year average annual revenue growth rate of The AZEK Co is 8.1%, which ranks well within its industry, and its EBITDA growth rate of 6.1% also positions it favorably against competitors. Such growth is a vital component of a company's valuation, as it often correlates with long-term stock performance and value creation for shareholders.
ROIC vs. WACC
Comparing a company's Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC) provides another perspective on profitability. The AZEK Co's ROIC over the past 12 months was 2.05, which is significantly lower than its WACC of 13.28, indicating that the company may not be creating value for shareholders as efficiently as possible.
Conclusion
In summary, The AZEK Co (AZEK, Financial) appears to be fairly valued at its current stock price. With fair financial strength and less-than-ideal profitability, the company's growth prospects stand out as a beacon for potential investment. Interested investors should consider The AZEK Co's full 30-Year Financials for a more detailed analysis.
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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.
