The stock of Miller Industries (NYSE:MLR, 30-year Financials) is estimated 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 $41.82 per share and the market cap of $477.2 million, Miller Industries stock appears to be significantly overvalued. GF Value for Miller Industries is shown in the chart below.
Because Miller Industries is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 1.9% over the past five years.
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It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. Miller Industries has a cash-to-debt ratio of 38.41, which is better than 89% of the companies in Vehicles & Parts industry. The overall financial strength of Miller Industries is 8 out of 10, which indicates that the financial strength of Miller Industries is strong. This is the debt and cash of Miller Industries over the past years:
It poses less risk to invest in profitable companies, especially those that have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. Miller Industries has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $645.1 million and earnings of $2.41 a share. Its operating margin is 5.56%, which ranks in the middle range of the companies in Vehicles & Parts industry. Overall, GuruFocus ranks the profitability of Miller Industries at 7 out of 10, which indicates fair profitability. This is the revenue and net income of Miller Industries 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 performance of a company’s stock. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Miller Industries is 1.9%, which ranks in the middle range of the companies in Vehicles & Parts industry. The 3-year average EBITDA growth rate is 8.6%, which ranks better than 72% of the companies in Vehicles & Parts 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, Miller Industries’s ROIC was 11.84, while its WACC came in at 7.78. The historical ROIC vs WACC comparison of Miller Industries is shown below:
In closing, the stock of Miller Industries (NYSE:MLR, 30-year Financials) is believed to be significantly overvalued. The company's financial condition is strong and its profitability is fair. Its growth ranks better than 72% of the companies in Vehicles & Parts industry. To learn more about Miller Industries stock, you can check out its 30-year Financials here.
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