The stock of Hoya (OTCPK:HOCPY, 30-year Financials) appears 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 $123.738 per share and the market cap of $45.6 billion, Hoya stock appears to be significantly overvalued. GF Value for Hoya is shown in the chart below.
Because Hoya is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth.
Link: These companies may deliever higher future returns at reduced risk.
Since investing in companies with low financial strength could result in permanent capital loss, investors must carefully review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. Hoya has a cash-to-debt ratio of 16.33, which ranks better than 71% of the companies in the industry of Medical Devices & Instruments. Based on this, GuruFocus ranks Hoya's financial strength as 8 out of 10, suggesting strong balance sheet. This is the debt and cash of Hoya over the past years:
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Hoya has been profitable 10 years over the past 10 years. During the past 12 months, the company had revenues of $2 billion and earnings of $2.709 a share. Its operating margin of 21.31% better than 97% of the companies in the industry of Medical Devices & Instruments. Overall, GuruFocus ranks Hoya's profitability as strong. This is the revenue and net income of Hoya over the past years:
Growth is probably one of the most important factors in the valuation of a company. GuruFocus' research has found that growth is closely correlated with the long-term performance of a company's stock. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. Hoya's 3-year average revenue growth rate is in the middle range of the companies in the industry of Medical Devices & Instruments. Hoya's 3-year average EBITDA growth rate is 2.7%, which ranks in the middle range of the companies in the industry of Medical Devices & Instruments.
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, Hoya's ROIC was 8.88, while its WACC came in at 3.92. The historical ROIC vs WACC comparison of Hoya is shown below:
To conclude, The stock of Hoya (OTCPK:HOCPY, 30-year Financials) appears to be significantly overvalued. The company's financial condition is strong and its profitability is strong. Its growth ranks in the middle range of the companies in the industry of Medical Devices & Instruments. To learn more about Hoya stock, you can check out its 30-year Financials here.
To find out the high quality companies that may deliever above average returns, please check out GuruFocus High Quality Low Capex Screener.
