Target Hospitality Corp (TH, Financial) experienced a daily loss of -6.96 %, with a 3-month loss of -1.63%. Despite these setbacks, the company maintains an Earnings Per Share (EPS) of 1.33. This article aims to answer the question: Is Target Hospitality modestly overvalued? Read on for a comprehensive valuation analysis of the company.
Company Introduction
Target Hospitality Corp is a leading vertically integrated specialty rental and hospitality services company in the United States. The company excels in offering comprehensive hospitality services, including catering food services, maintenance, housekeeping, grounds-keeping, on-site security, overall workforce lodge management, and laundry service. The majority of its revenue is generated from its Government contracts located in Texas.
With a current stock price of $12.69 per share and a GF Value of $9.82, Target Hospitality Corp (TH, Financial) appears to be modestly overvalued. This comparison between the stock price and the GF Value sets the stage for a deeper exploration of the company's value.
Understanding the GF Value
The GF Value is a proprietary measure of a stock's intrinsic value, calculated based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line on our summary page provides an overview of the fair value at which the stock should ideally be traded.
Target Hospitality's stock is believed to be modestly overvalued based on the GuruFocus Value calculation. 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 $12.69 per share, Target Hospitality has a market cap of $1.30 billion, making it modestly overvalued.
Given that Target Hospitality is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth.
Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's crucial to review a company's financial strength before deciding to buy shares. Target Hospitality has a cash-to-debt ratio of 0.3, which ranks worse than 69.82% of 1047 companies in the Business Services industry. Based on this, GuruFocus ranks Target Hospitality's financial strength as 6 out of 10, suggesting a fair balance sheet.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is less risky. Target Hospitality has been profitable 4 over the past 10 years, with high profitability margins indicating a safer investment. Over the past twelve months, the company had a revenue of $603.50 million and an Earnings Per Share (EPS) of $1.33. Its operating margin is 41.57%, which ranks better than 97.44% of 1056 companies in the Business Services industry.
Growth is a crucial 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 Target Hospitality is 13.9%, which ranks better than 75.64% of 973 companies in the Business Services industry. The 3-year average EBITDA growth rate is 21.7%, which ranks better than 68.79% of 849 companies in the Business Services industry.
ROIC vs WACC
Another way to assess a company's profitability is to compare its Return on invested capital (ROIC) with the Weighted average cost of capital (WACC). For the past 12 months, Target Hospitality's ROIC is 26.25, and its WACC is 19.19.
Conclusion
In conclusion, the stock of Target Hospitality Corp (TH, Financial) is believed to be modestly overvalued. The company's financial condition is fair, and its profitability is fair. Its growth ranks better than 68.79% of 849 companies in the Business Services industry. To learn more about Target Hospitality 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.
