Comfort Systems USA Inc (FIX, Financial) experienced a daily gain of 11.41% and a 3-month gain of 3.64%, with an Earnings Per Share (EPS) of 6.77. However, is the stock modestly overvalued? This article presents a thorough valuation analysis to answer this question. Read on to understand the company's business operations, financial strength, profitability, and growth potential.
Company Overview
Comfort Systems USA Inc provides comprehensive mechanical contracting services, specializing in heating, ventilation, & air conditioning (HVAC); plumbing; piping & controls; construction; and other electrical components. The company mainly serves commercial, industrial, and institutional buildings, with a significant focus on HVAC services. The revenue is roughly split between installation services for newly constructed facilities and maintenance services for existing buildings. The company operates mainly in the United States, with the Mechanical services segment contributing the majority of its revenue.
As of October 27, 2023, Comfort Systems USA (FIX, Financial) had a market cap of $6.10 billion and a stock price of $171.11 per share. The company's fair value, according to the GF Value, is $142.69, suggesting that the stock might be modestly overvalued.
Understanding GF Value
The GF Value is a proprietary measure that estimates the current intrinsic value of a stock. The GF Value Line on the summary page provides an overview of the fair value at which the stock should ideally be traded. This is calculated based on three factors:
- Historical multiples (PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow) at which the stock has traded.
- GuruFocus adjustment factor based on the company's past returns and growth.
- Future estimates of business performance.
The stock price typically fluctuates around the GF Value Line. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
At its current price of $171.11 per share, Comfort Systems USA (FIX, Financial) is estimated to be modestly overvalued according to GuruFocus' valuation method. This suggests that the long-term return of its stock is likely to be lower than its business growth.
Financial Strength
Investing in companies with poor financial strength carries a higher risk of permanent loss of capital. Thus, it is crucial to review the financial strength of a company before deciding to buy its stock. The cash-to-debt ratio and interest coverage are great starting points for understanding a company's financial strength. Comfort Systems USA has a cash-to-debt ratio of 0.23, which is lower than 71.72% of 1609 companies in the Construction industry. GuruFocus ranks the overall financial strength of Comfort Systems USA at 7 out of 10, indicating fair financial strength.
Profitability and Growth
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Comfort Systems USA has been profitable 10 years over the past 10 years. During the past 12 months, the company had revenues of $4.70 billion and Earnings Per Share (EPS) of $6.77. Its operating margin of 6.85% is better than 61.62% of 1631 companies in the Construction industry. Overall, GuruFocus ranks Comfort Systems USA's profitability as strong.
Growth is probably one of the most important factors 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. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. Comfort Systems USA's 3-year average revenue growth rate is better than 83.2% of 1554 companies in the Construction industry. Comfort Systems USA's 3-year average EBITDA growth rate is 17%, which ranks better than 71.96% of 1323 companies in the Construction industry.
ROIC vs WACC
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average 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 return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, Comfort Systems USA's ROIC is 11.84 while its WACC came in at 12.39.
Conclusion
In summary, the stock of Comfort Systems USA (FIX, Financial) is estimated to be modestly overvalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 71.96% of 1323 companies in the Construction industry. To learn more about Comfort Systems USA stock, you can 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.
