The stock of Victory Capital Holdings (NAS:VCTR, 30-year Financials) is believed to be 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 $28.04 per share and the market cap of $1.9 billion, Victory Capital Holdings stock appears to be significantly overvalued. GF Value for Victory Capital Holdings is shown in the chart below.
Because Victory Capital Holdings is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 12.3% over the past three years and is estimated to grow 13.85% annually over the next three to 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. Victory Capital Holdings has a cash-to-debt ratio of 0.03, which which ranks in the bottom 10% of the companies in Asset Management industry. The overall financial strength of Victory Capital Holdings is 4 out of 10, which indicates that the financial strength of Victory Capital Holdings is poor. This is the debt and cash of Victory Capital Holdings over the past years:
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. Victory Capital Holdings has been profitable 5 over the past 10 years. Over the past twelve months, the company had a revenue of $775.4 million and earnings of $2.89 a share. Its operating margin is 43.19%, which ranks better than 74% of the companies in Asset Management industry. Overall, the profitability of Victory Capital Holdings is ranked 8 out of 10, which indicates strong profitability. This is the revenue and net income of Victory Capital Holdings over the past years:
Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term stock performance of a company. A faster growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Victory Capital Holdings is 12.3%, which ranks better than 75% of the companies in Asset Management industry. The 3-year average EBITDA growth rate is 29.8%, which ranks better than 78% of the companies in Asset Management 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, Victory Capital Holdings's return on invested capital is 15.85, and its cost of capital is 6.43. The historical ROIC vs WACC comparison of Victory Capital Holdings is shown below:
In conclusion, the stock of Victory Capital Holdings (NAS:VCTR, 30-year Financials) appears to be significantly overvalued. The company's financial condition is poor and its profitability is strong. Its growth ranks better than 78% of the companies in Asset Management industry. To learn more about Victory Capital Holdings stock, you can check out its 30-year Financials here.
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