Expeditors International of Washington Stock Is Believed To Be Modestly Overvalued
- By GF Value
The stock of Expeditors International of Washington (NAS:EXPD, 30-year Financials) gives every indication of being modestly overvalued, 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 $115.64 per share and the market cap of $19.5 billion, Expeditors International of Washington stock is believed to be modestly overvalued. GF Value for Expeditors International of Washington is shown in the chart below.
Because Expeditors International of Washington is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth, which averaged 15.8% over the past three years and is estimated to grow 5.87% annually over the next three to 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. Expeditors International of Washington has a cash-to-debt ratio of 4.03, which which ranks better than 88% of the companies in Transportation industry. The overall financial strength of Expeditors International of Washington is 7 out of 10, which indicates that the financial strength of Expeditors International of Washington is fair. This is the debt and cash of Expeditors International of Washington 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. Expeditors International of Washington has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $11.6 billion and earnings of $5.04 a share. Its operating margin is 10.08%, which ranks better than 70% of the companies in Transportation industry. Overall, the profitability of Expeditors International of Washington is ranked 9 out of 10, which indicates strong profitability. This is the revenue and net income of Expeditors International of Washington over the past years:
Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term performance of a company's stock. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Expeditors International of Washington is 15.8%, which ranks better than 90% of the companies in Transportation industry. The 3-year average EBITDA growth rate is 12.3%, which ranks better than 72% of the companies in Transportation industry.
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). 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. If the return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, Expeditors International of Washington's ROIC is 48.84 while its WACC came in at 6.31. The historical ROIC vs WACC comparison of Expeditors International of Washington is shown below:
In short, The stock of Expeditors International of Washington (NAS:EXPD, 30-year Financials) appears to be modestly overvalued. The company's financial condition is fair and its profitability is strong. Its growth ranks better than 72% of the companies in Transportation industry. To learn more about Expeditors International of Washington stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.
