Myers Industries Stock Is Estimated To Be Significantly Overvalued

GuruFocus.com
·4 min read

- By GF Value

The stock of Myers Industries (NYSE:MYE, 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 $20.57 per share and the market cap of $742 million, Myers Industries stock appears to be significantly overvalued. GF Value for Myers Industries is shown in the chart below.


Myers Industries Stock Is Estimated To Be Significantly Overvalued
Myers Industries Stock Is Estimated To Be Significantly Overvalued

Because Myers Industries 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.

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. Myers Industries has a cash-to-debt ratio of 0.30, which is in the middle range of the companies in Packaging & Containers industry. GuruFocus ranks the overall financial strength of Myers Industries at 6 out of 10, which indicates that the financial strength of Myers Industries is fair. This is the debt and cash of Myers Industries over the past years:

Myers Industries Stock Is Estimated To Be Significantly Overvalued
Myers Industries Stock Is Estimated To Be Significantly Overvalued

Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Myers Industries has been profitable 7 years over the past 10 years. During the past 12 months, the company had revenues of $510.4 million and earnings of $1.02 a share. Its operating margin of 10.49% better than 71% of the companies in Packaging & Containers industry. Overall, GuruFocus ranks Myers Industries's profitability as fair. This is the revenue and net income of Myers Industries over the past years:

Myers Industries Stock Is Estimated To Be Significantly Overvalued
Myers Industries Stock Is Estimated To Be 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 Myers Industries is -7.4%, which ranks worse than 84% of the companies in Packaging & Containers industry. The 3-year average EBITDA growth is 5.9%, which ranks in the middle range of the companies in Packaging & Containers 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, Myers Industries's return on invested capital is 17.44, and its cost of capital is 9.74. The historical ROIC vs WACC comparison of Myers Industries is shown below:

Myers Industries Stock Is Estimated To Be Significantly Overvalued
Myers Industries Stock Is Estimated To Be Significantly Overvalued

Overall, The stock of Myers Industries (NYSE:MYE, 30-year Financials) shows every sign 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 Packaging & Containers industry. To learn more about Myers Industries 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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