Stag Industrial Stock Appears To Be Modestly Overvalued
- By GF Value
The stock of Stag Industrial (NYSE:STAG, 30-year Financials) shows every sign 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 $36.1 per share and the market cap of $5.8 billion, Stag Industrial stock shows every sign of being modestly overvalued. GF Value for Stag Industrial is shown in the chart below.
Because Stag Industrial is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth.
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Since investing in companies with low financial strength could result in permanent capital loss, investors must carefully review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. Stag Industrial has a cash-to-debt ratio of 0.01, which ranks worse than 88% of the companies in REITs industry. Based on this, GuruFocus ranks Stag Industrial's financial strength as 4 out of 10, suggesting poor balance sheet. This is the debt and cash of Stag Industrial 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. Stag Industrial has been profitable 6 over the past 10 years. Over the past twelve months, the company had a revenue of $483.4 million and earnings of $1.32 a share. Its operating margin is 28.80%, which ranks worse than 69% of the companies in REITs industry. Overall, the profitability of Stag Industrial is ranked 5 out of 10, which indicates fair profitability. This is the revenue and net income of Stag Industrial 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 Stag Industrial is -1.1%, which ranks in the middle range of the companies in REITs industry. The 3-year average EBITDA growth rate is 8.6%, which ranks better than 77% of the companies in REITs 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, Stag Industrial's return on invested capital is 3.26, and its cost of capital is 6.32.
To conclude, the stock of Stag Industrial (NYSE:STAG, 30-year Financials) appears to be modestly overvalued. The company's financial condition is poor and its profitability is fair. Its growth ranks better than 77% of the companies in REITs industry. To learn more about Stag Industrial stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.
