Advanced Energy Industries Stock Is Estimated To Be Fairly Valued
- By GF Value
The stock of Advanced Energy Industries (NAS:AEIS, 30-year Financials) is estimated to be fairly valued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $118.45 per share and the market cap of $4.5 billion, Advanced Energy Industries stock is believed to be fairly valued. GF Value for Advanced Energy Industries is shown in the chart below.
Because Advanced Energy Industries is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which averaged 30% over the past five years.
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Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. Advanced Energy Industries has a cash-to-debt ratio of 1.11, which which ranks in the middle range of the companies in Industrial Products industry. The overall financial strength of Advanced Energy Industries is 6 out of 10, which indicates that the financial strength of Advanced Energy Industries is fair. This is the debt and cash of Advanced Energy Industries over the past years:
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Advanced Energy Industries has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of $1.4 billion and earnings of $3.51 a share. Its operating margin is 13.36%, which ranks better than 80% of the companies in Industrial Products industry. Overall, the profitability of Advanced Energy Industries is ranked 8 out of 10, which indicates strong profitability. This is the revenue and net income of Advanced Energy Industries over the past years:
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 Advanced Energy Industries is 30%, which ranks better than 94% of the companies in Industrial Products industry. The 3-year average EBITDA growth is 5.5%, which ranks in the middle range of the companies in Industrial Products industry.
Another way to look at the profitability of a company is to compare its return on invested capital and the weighted 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. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, Advanced Energy Industries's return on invested capital is 16.66, and its cost of capital is 11.67. The historical ROIC vs WACC comparison of Advanced Energy Industries is shown below:
In summary, The stock of Advanced Energy Industries (NAS:AEIS, 30-year Financials) is believed to be fairly valued. The company's financial condition is fair and its profitability is strong. Its growth ranks in the middle range of the companies in Industrial Products industry. To learn more about Advanced Energy Industries stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.
