The stock of TFI International (NYSE:TFII, 30-year Financials) shows every sign of being 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 $91.99 per share and the market cap of $8.6 billion, TFI International stock is estimated to be significantly overvalued. GF Value for TFI International is shown in the chart below.
Because TFI International is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 0.2% over the past three years and is estimated to grow 16.67% 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. TFI International has a cash-to-debt ratio of 0.25, which which ranks in the middle range of the companies in Transportation industry. The overall financial strength of TFI International is 5 out of 10, which indicates that the financial strength of TFI International is fair. This is the debt and cash of TFI International 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. TFI International has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $3.2 billion and earnings of $2.475 a share. Its operating margin is 10.00%, which ranks better than 71% of the companies in Transportation industry. Overall, the profitability of TFI International is ranked 8 out of 10, which indicates strong profitability. This is the revenue and net income of TFI International 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 TFI International is 0.2%, which ranks in the middle range of the companies in Transportation industry. The 3-year average EBITDA growth rate is 27.1%, which ranks better than 83% of the companies in Transportation 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, TFI International’s return on invested capital is 7.71, and its cost of capital is 9.03. The historical ROIC vs WACC comparison of TFI International is shown below:
In conclusion, the stock of TFI International (NYSE:TFII, 30-year Financials) shows every sign of being significantly overvalued. The company's financial condition is fair and its profitability is strong. Its growth ranks better than 83% of the companies in Transportation industry. To learn more about TFI International stock, you can check out its 30-year Financials here.
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