The stock of American Woodmark (NAS:AMWD, 30-year Financials) is believed to be modestly undervalued, 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 $76.38 per share and the market cap of $1.3 billion, American Woodmark stock gives every indication of being modestly undervalued. GF Value for American Woodmark is shown in the chart below.
Because American Woodmark is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth, which averaged 11.1% over the past five years.
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Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Thus, it is important to carefully review the financial strength of a company before deciding whether to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company. American Woodmark has a cash-to-debt ratio of 0.14, which is worse than 88% of the companies in the industry of Furnishings, Fixtures & Appliances. GuruFocus ranks the overall financial strength of American Woodmark at 5 out of 10, which indicates that the financial strength of American Woodmark is fair. This is the debt and cash of American Woodmark 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. American Woodmark has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of $1.7 billion and earnings of $3.458 a share. Its operating margin is 6.74%, which ranks in the middle range of the companies in the industry of Furnishings, Fixtures & Appliances. Overall, the profitability of American Woodmark is ranked 7 out of 10, which indicates fair profitability. This is the revenue and net income of American Woodmark 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 American Woodmark is 11.1%, which ranks better than 80% of the companies in the industry of Furnishings, Fixtures & Appliances. The 3-year average EBITDA growth is 11.9%, which ranks in the middle range of the companies in the industry of Furnishings, Fixtures & Appliances.
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, American Woodmark’s ROIC was 6.22, while its WACC came in at 10.28. The historical ROIC vs WACC comparison of American Woodmark is shown below:
To conclude, the stock of American Woodmark (NAS:AMWD, 30-year Financials) is believed to be modestly undervalued. The company's financial condition is fair and its profitability is fair. Its growth ranks in the middle range of the companies in the industry of Furnishings, Fixtures & Appliances. To learn more about American Woodmark stock, you can check out its 30-year Financials here.
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