– By GF Value
The stock of Maxar Technologies (NYSE:MAXR, 30-year Financials) shows every sign of being significantly 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 $37.82 per share and the market cap of $2.7 billion, Maxar Technologies stock gives every indication of being significantly overvalued. GF Value for Maxar Technologies is shown in the chart below.
Because Maxar Technologies is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which is estimated to grow 3.48% annually over the next three to five years.
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. Maxar Technologies has a cash-to-debt ratio of 0.01, which which ranks in the bottom 10% of the companies in Hardware industry. The overall financial strength of Maxar Technologies is 3 out of 10, which indicates that the financial strength of Maxar Technologies is poor. This is the debt and cash of Maxar Technologies over the past years:
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Maxar Technologies has been profitable 9 years over the past 10 years. During the past 12 months, the company had revenues of $1.7 billion and earnings of $4.81 a share. Its operating margin of 2.90% in the middle range of the companies in Hardware industry. Overall, GuruFocus ranks Maxar Technologies’s profitability as fair. This is the revenue and net income of Maxar Technologies over the past years:
Growth is probably one of the most important factors 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. If a company’s business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company’s revenue and earnings are declining, the value of the company will decrease. Maxar Technologies’s 3-year average revenue growth rate is in the middle range of the companies in Hardware industry. Maxar Technologies’s 3-year average EBITDA growth rate is 365.5%, which ranks better than 100% of the companies in Hardware 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, Maxar Technologies’s return on invested capital is 0.78, and its cost of capital is 7.28. The historical ROIC vs WACC comparison of Maxar Technologies is shown below:
In summary, the stock of Maxar Technologies (NYSE:MAXR, 30-year Financials) is believed to be significantly overvalued. The company’s financial condition is poor and its profitability is fair. Its growth ranks better than 100% of the companies in Hardware industry. To learn more about Maxar Technologies stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.