FTI Consulting Stock Shows Every Sign Of Being Modestly Overvalued

GuruFocus.com
·4 min read

- By GF Value

The stock of FTI Consulting (NYSE:FCN, 30-year Financials) gives every indication of being modestly 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 $144.02 per share and the market cap of $4.9 billion, FTI Consulting stock is estimated to be modestly overvalued. GF Value for FTI Consulting is shown in the chart below.


FTI Consulting Stock Shows Every Sign Of Being Modestly Overvalued
FTI Consulting Stock Shows Every Sign Of Being Modestly Overvalued

Because FTI Consulting is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth, which averaged 12.8% over the past five years.

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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. FTI Consulting has a cash-to-debt ratio of 0.60, which which ranks in the middle range of the companies in Business Services industry. The overall financial strength of FTI Consulting is 6 out of 10, which indicates that the financial strength of FTI Consulting is fair. This is the debt and cash of FTI Consulting over the past years:

FTI Consulting Stock Shows Every Sign Of Being Modestly Overvalued
FTI Consulting Stock Shows Every Sign Of Being Modestly 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. FTI Consulting has been profitable 8 over the past 10 years. Over the past twelve months, the company had a revenue of $2.5 billion and earnings of $5.68 a share. Its operating margin is 11.52%, which ranks better than 77% of the companies in Business Services industry. Overall, the profitability of FTI Consulting is ranked 7 out of 10, which indicates fair profitability. This is the revenue and net income of FTI Consulting over the past years:

FTI Consulting Stock Shows Every Sign Of Being Modestly Overvalued
FTI Consulting Stock Shows Every Sign Of Being Modestly Overvalued

Growth is probably one of the most important factors in the valuation of a company. GuruFocus' research has found that growth is closely correlated with the long-term performance of a company's stock. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. FTI Consulting's 3-year average revenue growth rate is better than 78% of the companies in Business Services industry. FTI Consulting's 3-year average EBITDA growth rate is 30.6%, which ranks better than 86% of the companies in Business Services 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, FTI Consulting's return on invested capital is 9.89, and its cost of capital is 4.23. The historical ROIC vs WACC comparison of FTI Consulting is shown below:

FTI Consulting Stock Shows Every Sign Of Being Modestly Overvalued
FTI Consulting Stock Shows Every Sign Of Being Modestly Overvalued

In summary, The stock of FTI Consulting (NYSE:FCN, 30-year Financials) shows every sign of being modestly overvalued. The company's financial condition is fair and its profitability is fair. Its growth ranks better than 86% of the companies in Business Services industry. To learn more about FTI Consulting stock, you can check out its 30-year Financials here.

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This article first appeared on GuruFocus.