The stock of GreenTree Hospitality Group (NYSE:GHG, 30-year Financials) shows every sign 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 $15.02 per share and the market cap of $1.5 billion, GreenTree Hospitality Group stock is believed to be modestly overvalued. GF Value for GreenTree Hospitality Group is shown in the chart below.
Because GreenTree Hospitality Group is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth, which averaged 7.5% 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. GreenTree Hospitality Group has a cash-to-debt ratio of 7.71, which which ranks better than 82% of the companies in Travel & Leisure industry. The overall financial strength of GreenTree Hospitality Group is 7 out of 10, which indicates that the financial strength of GreenTree Hospitality Group is fair. This is the debt and cash of GreenTree Hospitality Group over the past years:
It is less risky to invest in profitable companies, especially those with consistent profitability over long term. A company with high profit margins is usually a safer investment than those with low profit margins. GreenTree Hospitality Group has been profitable 6 over the past 10 years. Over the past twelve months, the company had a revenue of $136.4 million and earnings of $0.373 a share. Its operating margin is 34.51%, which ranks better than 97% of the companies in Travel & Leisure industry. Overall, the profitability of GreenTree Hospitality Group is ranked 8 out of 10, which indicates strong profitability. This is the revenue and net income of GreenTree Hospitality Group over the past years:
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of GreenTree Hospitality Group is 7.5%, which ranks better than 83% of the companies in Travel & Leisure industry. The 3-year average EBITDA growth is -4.4%, which ranks in the middle range of the companies in Travel & Leisure industry.
Another way to evaluate 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 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 ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, GreenTree Hospitality Group's ROIC was 7.58, while its WACC came in at 5.49. The historical ROIC vs WACC comparison of GreenTree Hospitality Group is shown below:
To conclude, the stock of GreenTree Hospitality Group (NYSE:GHG, 30-year Financials) gives every indication of being modestly overvalued. The company's financial condition is fair and its profitability is strong. Its growth ranks in the middle range of the companies in Travel & Leisure industry. To learn more about GreenTree Hospitality Group stock, you can check out its 30-year Financials here.
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