As of October 20, 2023, Knight-Swift Transportation Holdings Inc (KNX, Financial) has seen a daily gain of 10.55%, despite a 3-month loss of -7.81%. With an Earnings Per Share (EPS) (EPS) of 3.16, the question arises: is the stock modestly undervalued? This article aims to provide an in-depth valuation analysis of Knight-Swift Transportation Holdings Inc (KNX), offering valuable insights for potential investors.
Company Overview
Knight-Swift Transportation Holdings is the largest truckload carrier in the U.S., offering a diversified transportation service. The company's revenue primarily comes from its asset-based trucking business, which accounts for 74% of total revenue. Other revenue sources include truck brokerage and other asset-light logistics services (14%), intermodal operations (6%), and additional services offered to shippers and third-party truckers (6%).
Currently, the company's stock is trading at $50.72, while the GF Value, an estimation of its fair value, stands at $63.74. This discrepancy suggests that the stock may be modestly undervalued.
Understanding the GF Value
The GF Value is a proprietary measure that estimates a stock's intrinsic value. It is calculated based on historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line represents the fair value at which the stock should ideally be traded.
As per our valuation method, Knight-Swift Transportation Holdings (KNX, Financial) appears to be modestly undervalued. This is based on its current price of $50.72 per share and its GF Value of $63.74. If a stock's price is significantly above the GF Value Line, it is considered overvalued and likely to offer poor future returns. Conversely, if it is below the GF Value Line, it may be undervalued and poised for higher future returns.
Given the current valuation, Knight-Swift Transportation Holdings' long-term return is likely to be higher than its business growth.
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Financial Strength
Before investing in a company, it's crucial to assess its financial strength. Companies with poor financial strength pose a higher risk of permanent loss. The cash-to-debt ratio and interest coverage are excellent metrics to understand a company's financial strength. Knight-Swift Transportation Holdings has a cash-to-debt ratio of 0.1, which is lower than 83.69% of 944 companies in the Transportation industry. The overall financial strength of Knight-Swift Transportation Holdings is 6 out of 10, indicating fair financial health.
Profitability and Growth
Consistent profitability over the long term reduces the risk for investors. Knight-Swift Transportation Holdings has been profitable 10 years over the past decade. With an operating margin of 10.35%, it ranks better than 57.97% of 954 companies in the Transportation industry. This strong profitability is a positive sign for potential investors.
Growth is a critical factor in a company's valuation. The faster a company is growing, the more likely it is to be creating value for shareholders. Knight-Swift Transportation Holdings has a 3-year average annual revenue growth rate of 17.4%, ranking better than 76.53% of 916 companies in the Transportation industry. Its 3-year average EBITDA growth rate is 26.3%, which ranks better than 71.78% of 822 companies in the industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can further evaluate its profitability. The ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. The 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 exceeds the WACC, the company is likely creating value for its shareholders. Knight-Swift Transportation Holdings's ROIC stands at 5.38, while its WACC is at 8.83.
Conclusion
In conclusion, Knight-Swift Transportation Holdings (KNX, Financial) appears to be modestly undervalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 71.78% of 822 companies in the Transportation industry. To learn more about Knight-Swift Transportation Holdings stock, check out its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
