Green Brick Partners Inc (GRBK, Financial) witnessed a daily loss of 9.15%, and a 3-month loss of 10.68%. The Earnings Per Share (EPS) stands at 5.75. The question arises: Is the stock significantly overvalued? This article presents an in-depth analysis of the valuation of Green Brick Partners Inc (GRBK). Read on to uncover the insights.
Company Introduction
Green Brick Partners Inc is a renowned homebuilding and land development company. Its operations span land acquisition and development, entitlements, design, construction, marketing, sales, and brand image creation. The company also provides home financing services. The majority of its revenue is generated from builder operations in Texas. Its current stock price stands at $46.05, while the GF Value, an estimation of fair value, is $33.58. This discrepancy prompts a closer look at the company's valuation.
Understanding GF Value
The GF Value is a proprietary measure of a stock's intrinsic value, computed based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line on our summary page gives an overview of the fair value that the stock should be traded at. If the stock price 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.
Currently, Green Brick Partners (GRBK, Financial) appears to be significantly overvalued, according to GuruFocus Value calculation. At its current price of $46.05 per share and the market cap of $2.10 billion, Green Brick Partners stock appears to be significantly overvalued. As a result, the long-term return of its stock is likely to be much lower than its future business growth.
Assessing Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, a careful review of a company's financial strength is crucial before deciding to buy shares. Green Brick Partners has a cash-to-debt ratio of 0.83, ranking better than 55.66% of 106 companies in the Homebuilding & Construction industry. Based on this, GuruFocus ranks Green Brick Partners's financial strength as 7 out of 10, suggesting a fair balance sheet.
Profitability and Growth
Investing in profitable companies, especially those that have demonstrated consistent profitability over the long term, poses less risk. Green Brick Partners has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of $1.70 billion and Earnings Per Share (EPS) of $5.75. Its operating margin is 18.9%, which ranks better than 85.32% of 109 companies in the Homebuilding & Construction industry. Overall, GuruFocus ranks the profitability of Green Brick Partners at 8 out of 10, which indicates strong profitability.
Growth is a crucial factor in the valuation of a company. The 3-year average annual revenue growth rate of Green Brick Partners is 32.8%, which ranks better than 91.18% of 102 companies in the Homebuilding & Construction industry. The 3-year average EBITDA growth rate is 72.4%, which ranks better than 93.68% of 95 companies in the Homebuilding & Construction industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to the weighted average cost of capital (WACC) is another method of determining its profitability. 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. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Green Brick Partners's return on invested capital is 18.46, and its cost of capital is 13.57.
Conclusion
In summary, the stock of Green Brick Partners (GRBK, Financial) appears to be significantly overvalued. The company's financial condition is fair and its profitability is strong. Its growth ranks better than 93.68% of 95 companies in the Homebuilding & Construction industry. To learn more about Green Brick Partners stock, you can check out its 30-Year Financials here.
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