– By GF value
B. Riley Financial (NAS: RILY, 30 Financials) stock appears to be significantly overvalued, according to GuruFocus Value’s calculation. The GuruFocus Value is GuruFocus’ estimate of the fair value at which the stock is to trade. It is calculated based on the historical multiples at which the stock has traded, past business growth, and analysts’ estimates of future business performance. If a share’s price is significantly above the GF value line, it is overvalued and its future performance may be poor. On the other hand, if it is significantly below the GF value line, its future return is likely to be higher. At its current price of $ 60.97 per share and market cap of $ 1.7 billion, B. Riley Financial stock gives any indication that it is significantly overvalued. The GF value for B. Riley Financial is shown in the table below.
Because B. Riley Financial is significantly overvalued, the long-term return on its stock is likely to be much lower than the future growth of its business, which has averaged 36.9% over the past five years. last years.
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Since investing in companies with poor financial strength could result in a permanent loss of capital, investors should carefully consider the financial strength of a company before deciding whether or not to buy shares. Examining the cash-to-debt ratio and interest coverage can provide a good initial perspective on the financial strength of the business. B. Riley Financial has a cash-to-debt ratio of 0.06, which ranks among the poorest 10% of companies in the diversified financial services industry. Based on this, GuruFocus ranks B. Riley Financial’s financial strength as 4 out of 10, which suggests a poor track record. Here is B. Riley Financial’s debt and cash flow over the past several years:
It is less risky to invest in profitable companies, especially those that have demonstrated consistent profitability over the long term. A business with high profit margins is also generally a safer investment than a business with low profit margins. B. Riley Financial has been profitable 9 in the past 10 years. In the past twelve months, the company achieved sales of $ 902.7 million and earnings of $ 7.54 per share. Its operating margin is 39.75%, which ranks better than 81% of companies in the Diversified Financial Services industry. Overall, GuruFocus ranks B. Riley Financial’s profitability as 8 out of 10, indicating strong profitability. Here is B. Riley Financial’s sales and net income for the past few years:
Growth is probably the most important factor in the valuation of a business. GuruFocus research has shown that growth is closely tied to a company’s long-term market performance. A faster growing business creates more shareholder value, especially if the growth is profitable. B. Riley Financial’s 3-year average annual revenue growth is 36.9%, which ranks higher than 94% of companies in the diversified financial services industry. The 3-year average EBITDA growth rate is 102.9%, which ranks better than 99% of companies in the diversified financial services industry.
Another way to assess a company’s profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). Return on Invested Capital (ROIC) measures how well a business 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 should pay on average all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating shareholder value. Over the past 12 months, B. Riley Financial’s ROIC was 12.57, while its WACC was 6.26. B. Riley Financial’s historical ROIC vs WACC comparison is shown below:
In conclusion, the B. Riley Financial share (NAS: RILY, 30 years Financials) gives all indications of a significant overvaluation. The company’s financial situation is bad and its profitability is strong. Its growth ranks better than 99% of companies in the diversified financial services industry. To learn more about B. Riley Financial’s shares, you can view its 30-year financial data here.
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This article first appeared on GuruFocus.