Veritiv Stock Is Estimated To Be Significantly Overvalued

GuruFocus.com
·4 min read

- By GF Value

The stock of Veritiv (NYSE:VRTV, 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 $43.21 per share and the market cap of $666.3 million, Veritiv stock is estimated to be significantly overvalued. GF Value for Veritiv is shown in the chart below.


Veritiv Stock Is Estimated To Be Significantly Overvalued
Veritiv Stock Is Estimated To Be Significantly Overvalued

Because Veritiv is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth.

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

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. Veritiv has a cash-to-debt ratio of 0.12, which which ranks worse than 83% of the companies in Conglomerates industry. The overall financial strength of Veritiv is 5 out of 10, which indicates that the financial strength of Veritiv is fair. This is the debt and cash of Veritiv over the past years:

Veritiv Stock Is Estimated To Be Significantly Overvalued
Veritiv Stock Is Estimated To Be Significantly Overvalued

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. Veritiv has been profitable 6 over the past 10 years. Over the past twelve months, the company had a revenue of $6.3 billion and earnings of $2.06 a share. Its operating margin is 1.58%, which ranks in the middle range of the companies in Conglomerates industry. Overall, the profitability of Veritiv is ranked 4 out of 10, which indicates poor profitability. This is the revenue and net income of Veritiv over the past years:

Veritiv Stock Is Estimated To Be Significantly Overvalued
Veritiv Stock Is Estimated To Be Significantly Overvalued

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 Veritiv is -10.3%, which ranks worse than 78% of the companies in Conglomerates industry. The 3-year average EBITDA growth rate is 12.2%, which ranks in the middle range of the companies in Conglomerates industry.

Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average 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. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Veritiv's return on invested capital is 4.84, and its cost of capital is 6.87. The historical ROIC vs WACC comparison of Veritiv is shown below:

Veritiv Stock Is Estimated To Be Significantly Overvalued
Veritiv Stock Is Estimated To Be Significantly Overvalued

To conclude, The stock of Veritiv (NYSE:VRTV, 30-year Financials) appears to be significantly overvalued. The company's financial condition is fair and its profitability is poor. Its growth ranks in the middle range of the companies in Conglomerates industry. To learn more about Veritiv 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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