Sterling Infrastructure (STRL, Financial) reported a daily loss of -15.91%, with a 3-month gain of 1.39%. Its Earnings Per Share (EPS) stands at 4.2. The question remains, is the stock significantly overvalued? In this article, we'll delve into a comprehensive valuation analysis of Sterling Infrastructure (STRL) to answer this question.
About Sterling Infrastructure (STRL, Financial)
Sterling Infrastructure Inc is a construction company specializing in heavy civil infrastructure construction, infrastructure rehabilitation, and residential construction projects. The company operates in three reportable segments: Transportation Solutions, E-Infrastructure Solutions, and Building Solution. The majority of the revenue is generated from E-Infrastructure Solutions.
The current stock price of Sterling Infrastructure (STRL, Financial) is $62.67, with a market cap of $1.90 billion. When compared to Sterling Infrastructure's GF Value of $32.94, it appears that the stock is significantly overvalued.
Understanding the GF Value
The GF Value is a unique measure that provides an estimation of a stock's intrinsic value. It is calculated based on three factors: historical multiples (PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow), a GuruFocus adjustment factor based on the company's past returns and growth, and future business performance estimates.
The GF Value Line on the summary page gives an overview of the fair value at which the stock should ideally 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.
Based on GuruFocus' valuation method, Sterling Infrastructure (STRL, Financial) is estimated to be significantly overvalued. Therefore, the long-term return of its stock is likely to be much lower than its future business growth.
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Financial Strength of Sterling Infrastructure
Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Thus, it is important to carefully review the financial strength of a company before deciding whether to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company. Sterling Infrastructure has a cash-to-debt ratio of 0.65, which is better than 50.72% of 1607 companies in the Construction industry. GuruFocus ranks the overall financial strength of Sterling Infrastructure at 7 out of 10, which indicates that the financial strength of Sterling Infrastructure is fair.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is less risky. A company with high profit margins is usually a safer investment than those with low profit margins. Sterling Infrastructure has been profitable 6 over the past 10 years. Over the past twelve months, the company had a revenue of $1.80 billion and Earnings Per Share (EPS) of $4.2. Its operating margin is 10.37%, which ranks better than 76.13% of 1630 companies in the Construction industry. Overall, the profitability of Sterling Infrastructure is ranked 7 out of 10, which indicates fair profitability.
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Sterling Infrastructure is 11.7%, which ranks better than 73.94% of 1554 companies in the Construction industry. The 3-year average EBITDA growth is 53.8%, which ranks better than 92.3% of 1325 companies in the Construction industry.
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average 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. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Sterling Infrastructure's return on invested capital is 11.06, and its cost of capital is 10.01.
Conclusion
In conclusion, the stock of Sterling Infrastructure (STRL, Financial) is estimated to be significantly overvalued. The company's financial condition is fair and its profitability is fair. Its growth ranks better than 92.3% of 1325 companies in the Construction industry. To learn more about Sterling Infrastructure 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.
