Dali Foods Group Co Stock Is Estimated To Be Modestly Undervalued

GuruFocus.com
·4 min read

- By GF Value

The stock of Dali Foods Group Co (HKSE:03799, 30-year Financials) appears to be modestly undervalued, 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 HK$4.53 per share and the market cap of HK$62 billion, Dali Foods Group Co stock is believed to be modestly undervalued. GF Value for Dali Foods Group Co is shown in the chart below.


Dali Foods Group Co Stock Is Estimated To Be Modestly Undervalued
Dali Foods Group Co Stock Is Estimated To Be Modestly Undervalued

Because Dali Foods Group Co is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth, which averaged 5.9% over the past three years and is estimated to grow 4.35% annually over the next three to five years.

Link: These companies may deliever higher future returns at reduced risk.

Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Thus, it is important to carefully review the financial strength of a company before deciding whether to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company. Dali Foods Group Co has a cash-to-debt ratio of 44.71, which is better than 89% of the companies in the industry of Consumer Packaged Goods. GuruFocus ranks the overall financial strength of Dali Foods Group Co at 9 out of 10, which indicates that the financial strength of Dali Foods Group Co is strong. This is the debt and cash of Dali Foods Group Co over the past years:

Dali Foods Group Co Stock Is Estimated To Be Modestly Undervalued
Dali Foods Group Co Stock Is Estimated To Be Modestly Undervalued

It is less risky to invest in profitable companies, especially those with consistent profitability over long term. A company with high profit margins is usually a safer investment than those with low profit margins. Dali Foods Group Co has been profitable 6 over the past 10 years. Over the past twelve months, the company had a revenue of HK$22.5 billion and earnings of HK$0.298 a share. Its operating margin is 21.46%, which ranks better than 93% of the companies in the industry of Consumer Packaged Goods. Overall, the profitability of Dali Foods Group Co is ranked 7 out of 10, which indicates fair profitability. This is the revenue and net income of Dali Foods Group Co over the past years:

Dali Foods Group Co Stock Is Estimated To Be Modestly Undervalued
Dali Foods Group Co Stock Is Estimated To Be Modestly Undervalued

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 stock performance of a company. A faster growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Dali Foods Group Co is 5.9%, which ranks in the middle range of the companies in the industry of Consumer Packaged Goods. The 3-year average EBITDA growth rate is 8.9%, which ranks in the middle range of the companies in the industry of Consumer Packaged Goods.

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, Dali Foods Group Co's ROIC is 49.84 while its WACC came in at 0.83. The historical ROIC vs WACC comparison of Dali Foods Group Co is shown below:

Dali Foods Group Co Stock Is Estimated To Be Modestly Undervalued
Dali Foods Group Co Stock Is Estimated To Be Modestly Undervalued

In short, the stock of Dali Foods Group Co (HKSE:03799, 30-year Financials) appears to be modestly undervalued. The company's financial condition is strong and its profitability is fair. Its growth ranks in the middle range of the companies in the industry of Consumer Packaged Goods. To learn more about Dali Foods Group Co 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.

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