Ichor Holdings Stock Is Estimated To Be Significantly Overvalued

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– By GF Value

The stock of Ichor Holdings (NAS:ICHR, 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 $58.73 per share and the market cap of $1.6 billion, Ichor Holdings stock appears to be significantly overvalued. GF Value for Ichor Holdings is shown in the chart below.

Ichor Holdings Stock Is Estimated To Be Significantly Overvalued

Because Ichor Holdings is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 15.9% over the past three years and is estimated to grow 14.36% annually over the next three to five years.

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It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. Ichor Holdings has a cash-to-debt ratio of 1.20, which is in the middle range of the companies in Semiconductors industry. The overall financial strength of Ichor Holdings is 6 out of 10, which indicates that the financial strength of Ichor Holdings is fair. This is the debt and cash of Ichor Holdings over the past years:

Ichor Holdings Stock Is Estimated To Be Significantly Overvalued

It poses less risk to invest in profitable companies, especially those that have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. Ichor Holdings has been profitable 7 over the past 10 years. Over the past twelve months, the company had a revenue of $914.2 million and earnings of $1.41 a share. Its operating margin is 4.54%, which ranks in the middle range of the companies in Semiconductors industry. Overall, GuruFocus ranks the profitability of Ichor Holdings at 6 out of 10, which indicates fair profitability. This is the revenue and net income of Ichor Holdings over the past years:

Ichor Holdings Stock Is Estimated To Be Significantly Overvalued

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. Ichor Holdings’s 3-year average revenue growth rate is better than 81% of the companies in Semiconductors industry. Ichor Holdings’s 3-year average EBITDA growth rate is 7.4%, which ranks in the middle range of the companies in Semiconductors 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, Ichor Holdings’s ROIC is 11.00 while its WACC came in at 13.66. The historical ROIC vs WACC comparison of Ichor Holdings is shown below:

Ichor Holdings Stock Is Estimated To Be Significantly Overvalued

In summary, the stock of Ichor Holdings (NAS:ICHR, 30-year Financials) gives every indication of being significantly overvalued. The company’s financial condition is fair and its profitability is fair. Its growth ranks in the middle range of the companies in Semiconductors industry. To learn more about Ichor Holdings stock, you can check out its 30-year Financials here.

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This article first appeared on GuruFocus.

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