– By GF value
The stock of Sun Life Financial (TSX: SLF, 30-year financial data) gives every indication of a fair value, according to the GuruFocus valuation calculation. GuruFocus Value is GuruFocus’ estimate of the fair value at which the stock should trade. It is calculated based on the historical multiples at which the stock has traded, past business growth and analysts’ estimates of the company’s future performance. If a stock’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 will likely be higher. At its current price of C$65.11 per share and market capitalization of C$38.1 billion, Sun Life Financial’s stock is valued at fair value. The GF value for Sun Life Financial is shown in the table below.
Because Sun Life Financial is valued at fair value, the long-term return on its shares is expected to approximate the growth rate of its business, which has averaged 16% over the past three years and is expected to grow by 0.96% per year for the next three years. at five years old.
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Companies with weak financial strength offer investors a high risk of permanent capital loss. To avoid a permanent capital loss, an investor should do their research and examine a company’s financial strength before deciding to buy stock. A company’s cash-to-debt ratio and interest coverage are a great way to understand its financial strength. Sun Life Financial has a cash-to-debt ratio of 1.89, which puts it in the middle of the insurance industry. Sun Life Financial’s overall financial strength is 5 out of 10, indicating that Sun Life Financial’s financial strength is acceptable. Here is Sun Life Financial’s debt and cash flow over the past few years:
It is less risky to invest in profitable businesses, especially those with consistent long-term profitability. A business with high profit margins is generally a safer investment than those with low profit margins. Sun Life Financial has been profitable 9 of the past 10 years. Over the past twelve months, the company has posted revenue of C$43.3 billion and earnings of C$4.088 per share. Its operating margin is 0.00%, which ranks it in the bottom 10% of companies in the insurance industry. Overall, Sun Life Financial’s profitability is ranked 5 out of 10, indicating reasonable profitability. Here are Sun Life Financial’s revenues and net income for the past several years:
Growth is probably one of the most important factors in the valuation of a company. GuruFocus research has found that growth is closely tied to the long-term performance of a company’s stock. If a company’s business is growing, the company generally creates value for its shareholders, especially if the growth is profitable. Similarly, if a company’s revenue and profits decrease, the value of the company will decrease. Sun Life Financial’s average 3-year revenue growth rate exceeds 85% of companies in the insurance industry. Sun Life Financial’s average 3-year EBITDA growth rate is 5.2%, which is in line with the average for companies in the insurance industry.
A company’s profitability can also be assessed by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). 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. If the return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. Over the past 12 months, Sun Life Financial’s ROIC is 1.04 while its WACC is 7.13. The historical comparison of Sun Life Financial’s ROIC and WACC is shown below:
In conclusion, the stock of Sun Life Financial (TSX: SLF, 30 year financial data) is considered to have a fair value. The company’s financial situation is correct and its profitability is correct. Its growth is in line with the average for companies in the insurance sector. To learn more about Sun Life Financial’s stock, you can view its 30-year financial statements here.
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This article first appeared on GuruFocus.