– By GF Value
The stock of Jabil (NYSE:JBL, 30-year Financials) is believed to be 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 $53.18 per share and the market cap of $7.9 billion, Jabil stock is estimated to be significantly overvalued. GF Value for Jabil is shown in the chart below.
Because Jabil is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 19.6% over the past three years and is estimated to grow 3.93% annually over the next three to five years.
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. Jabil has a cash-to-debt ratio of 0.27, which is worse than 86% of the companies in Hardware industry. The overall financial strength of Jabil is 5 out of 10, which indicates that the financial strength of Jabil is fair. This is the debt and cash of Jabil 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. Jabil has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $28.3 billion and earnings of $2.4 a share. Its operating margin is 3.16%, which ranks in the middle range of the companies in Hardware industry. Overall, the profitability of Jabil is ranked 8 out of 10, which indicates strong profitability. This is the revenue and net income of Jabil 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 Jabil is 19.6%, which ranks better than 88% of the companies in Hardware industry. The 3-year average EBITDA growth is 8.4%, which ranks in the middle range 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, Jabil’s return on invested capital is 7.91, and its cost of capital is 8.88. The historical ROIC vs WACC comparison of Jabil is shown below:
In conclusion, the stock of Jabil (NYSE:JBL, 30-year Financials) gives every indication of being significantly overvalued. The company’s financial condition is fair and its profitability is strong. Its growth ranks in the middle range of the companies in Hardware industry. To learn more about Jabil stock, you can check out its 30-year Financials here.
To find out the high quality companies that may deliever above average returns, please check out GuruFocus High Quality Low Capex Screener.
This article first appeared on GuruFocus.