Knowles Corp (KN, Financial) recently witnessed a 22.06% gain, despite a 3-month loss of 0.24%. With a reported Loss Per Share of 2.16, the question arises: is the stock fairly valued? In this article, we aim to answer this question by conducting an in-depth valuation analysis of Knowles (KN). We invite you to read on as we unravel the financial story behind this company.
Company Introduction
Knowles Corp is a leading manufacturer of micro-acoustic microphones, balanced armature speakers, audio solutions, high-performance capacitors, and radio frequency filtering products. The company operates in three segments: Precision Devices, Medtech & Specialty Audio, and Consumer MEMS Microphones, with the majority of its revenue coming from the latter. With a current stock price of $16.49 and a GF Value of $17.43, Knowles (KN, Financial) appears to be fairly valued. To better understand this valuation, let's delve into the company's financials and its intrinsic value.
Understanding GF Value
The GF Value represents the current intrinsic value of a stock derived from our exclusive method. The GF Value Line on our summary page provides an overview of the fair value at which the stock should be traded. This value is calculated based on three factors:
- Historical multiples (PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow) that the stock has traded at.
- GuruFocus adjustment factor based on the company's past returns and growth.
- Future estimates of business performance.
The GF Value Line is the fair value at which the stock should be traded. 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.
According to our valuation method, Knowles (KN, Financial) is estimated to be fairly valued. The stock's fair value is based on historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. At its current price of $16.49 per share, Knowles stock is estimated to be fairly valued. As a result, the long-term return of its stock is likely to be close to the rate of its business growth.
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Financial Strength
Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid this, an investor must 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 understand its financial strength. With a cash-to-debt ratio of 0.95, Knowles ranks worse than 57.44% of 2371 companies in the Hardware industry. However, its overall financial strength is 8 out of 10, indicating that Knowles is financially strong.
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. Knowles has been profitable 6 years over the past 10 years. During the past 12 months, the company had revenues of $692.60 million and a Loss Per Share of $2.16. Its operating margin of 4.27% is better than 51.71% of 2452 companies in the Hardware industry. Overall, GuruFocus ranks Knowles's profitability as fair.
Growth is probably the most important factor in the valuation of a company. A faster-growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Knowles is -3.1%, which ranks worse than 71.32% of 2329 companies in the Hardware industry. The 3-year average EBITDA growth rate is 0%, which ranks worse than 0% of 1957 companies in the Hardware industry.
ROIC vs WACC
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, Knowles's return on invested capital is 2.42, and its cost of capital is 12.98.
Conclusion
Overall, Knowles (KN, Financial) stock is estimated to be fairly valued. The company's financial condition is strong and its profitability is fair. Its growth ranks worse than 0% of 1957 companies in the Hardware industry. To learn more about Knowles 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.
