MSA Safety Stock Gives Every Indication Of Being Significantly Overvalued

GuruFocus.com
·4 min read

- By GF Value

The stock of MSA Safety (NYSE:MSA, 30-year Financials) gives every indication 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 $151.51 per share and the market cap of $5.9 billion, MSA Safety stock appears to be significantly overvalued. GF Value for MSA Safety is shown in the chart below.


MSA Safety Stock Gives Every Indication Of Being Significantly Overvalued
MSA Safety Stock Gives Every Indication Of Being Significantly Overvalued

Because MSA Safety is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 3.5% over the past five years.

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

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. MSA Safety has a cash-to-debt ratio of 0.67, which ranks in the middle range of the companies in Business Services industry. Based on this, GuruFocus ranks MSA Safety's financial strength as 6 out of 10, suggesting fair balance sheet. This is the debt and cash of MSA Safety over the past years:

MSA Safety Stock Gives Every Indication Of Being Significantly Overvalued
MSA Safety Stock Gives Every Indication Of Being Significantly Overvalued

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. MSA Safety has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $1.3 billion and earnings of $3.05 a share. Its operating margin is 15.04%, which ranks better than 84% of the companies in Business Services industry. Overall, the profitability of MSA Safety is ranked 8 out of 10, which indicates strong profitability. This is the revenue and net income of MSA Safety over the past years:

MSA Safety Stock Gives Every Indication Of Being Significantly Overvalued
MSA Safety Stock Gives Every Indication Of Being Significantly Overvalued

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 MSA Safety is 3.5%, which ranks in the middle range of the companies in Business Services industry. The 3-year average EBITDA growth is 36.1%, which ranks better than 90% of the companies in Business Services 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, MSA Safety's ROIC is 10.54 while its WACC came in at 7.26. The historical ROIC vs WACC comparison of MSA Safety is shown below:

MSA Safety Stock Gives Every Indication Of Being Significantly Overvalued
MSA Safety Stock Gives Every Indication Of Being Significantly Overvalued

To conclude, the stock of MSA Safety (NYSE:MSA, 30-year Financials) appears to be significantly overvalued. The company's financial condition is fair and its profitability is strong. Its growth ranks better than 90% of the companies in Business Services industry. To learn more about MSA Safety 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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