– By GF value
Genworth Financial (NYSE: GNW, 30-year-old Financials) stock appears to be slightly undervalued, according to GuruFocus Value’s calculation. The GuruFocus Value is GuruFocus’s 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, the company’s past growth, and analysts’ estimates of the company’s future 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 $ 3.33 per share and market cap of $ 1.7 billion, Genworth Financial stock would be slightly undervalued. The GF value for Genworth Financial is shown in the table below.
Because Genworth Financial is relatively undervalued, its long-term stock return is likely to outperform its business growth, which has averaged 4.2% over the past five years.
Link: These companies can offer higher future returns with reduced risk.
It is always important to check the financial strength of a company before buying its shares. Investing in companies with low financial strength presents a higher risk of permanent loss. Examining the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a business. Genworth Financial has a cash-to-debt ratio of 0.75, which is worse than 71% of companies in the insurance industry. The overall financial strength of Genworth Financial is 4 out of 10, indicating that the financial strength of Genworth Financial is low. Here is Genworth Financial’s debt and liquidity over the past several years:
Companies that have historically been profitable over the long term pose less risk to investors who want to buy stocks. Higher profit margins usually dictate a better investment compared to a business with lower profit margins. Genworth Financial has been profitable 7 in the past 10 years. In the past twelve months, the company reported sales of $ 8.7 billion and earnings of $ 0.34 per share. Its operating margin is 0.00%, which ranks it in the bottom 10% of companies in the insurance industry. Overall, Genworth Financial’s profitability is ranked 4 out of 10, indicating low profitability. Here is Genworth Financial’s sales and net income for the past several years:
One of the most important factors in the valuation of a business is growth. Long-term equity performance is closely linked to growth, according to GuruFocus research. Companies that grow faster create more shareholder value, especially if that growth is profitable. Genworth Financial’s average annual revenue growth is 4.2%, which is in line with the average for companies in the insurance industry. The 3-year average EBITDA growth is 45.4%, which ranks better than 93% of companies in the insurance industry.
Another way to determine a company’s profitability is to compare its return on invested capital to the weighted average cost of capital. 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 to all of its security holders to finance its assets. When the ROIC is higher than the WACC, it implies that the company creates value for the shareholders. For the past 12 months, Genworth Financial’s return on invested capital is 0.91 and its cost of capital is 5.03. Genworth Financial’s historical ROIC vs WACC comparison is shown below:
In conclusion, the stock of Genworth Financial (NYSE: GNW, 30 years Financials) gives any indication of being slightly undervalued. The company’s financial situation is bad and its profitability is bad. Its growth ranks better than 93% of companies in the insurance sector. To learn more about Genworth Financial stocks, you can view its 30-year financial data here.
To find out about high-quality companies that can deliver above-average returns, please see GuruFocus High Quality Low Capex Screener.
This article first appeared on GuruFocus.