Griffon Corp (GFF, Financial) recently experienced a daily loss of 6.14%, yet it has achieved a 3.75% gain over the past three months. However, with a Loss Per Share of $7.39, investors are prompted to question if the stock is significantly overvalued. This article delves into Griffon's valuation analysis, revealing insights that underscore the current market dynamics of this conglomerate.
Company Introduction
Griffon Corp (GFF, Financial) is a prominent player in the manufacturing and marketing of residential, commercial, and industrial garage doors, as well as providing non-powered landscaping products. The company's revenue is primarily generated from its Home and Building Products segment. With a stock price of $44.34 and a Fair Value (GF Value) of $32.11, there is a clear discrepancy, suggesting that Griffon's stock might be trading at a premium compared to its estimated fair value. This initial observation sets the stage for an in-depth analysis of Griffon's intrinsic value.
Summarize GF Value
The GF Value is a unique valuation method that combines historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates to arrive at a stock's intrinsic value. The GF Value Line serves as a benchmark for what a stock's fair trading value should be. Griffon (GFF, Financial) appears to be significantly overvalued by this measure, with the market cap of $2.40 billion far exceeding the GF Value. This suggests that the stock may yield a lower long-term return than the company's future business growth.
Link: These companies may deliver higher future returns at reduced risk.
Financial Strength
Investing in companies with robust financial strength is crucial to minimize the risk of capital loss. Griffon's financial strength, however, is cause for concern, with a cash-to-debt ratio of 0.09. This ratio is lower than 86.83% of companies in the Conglomerates industry, indicating that Griffon's financial stability may be precarious.
Profitability and Growth
The profitability of a company is a key indicator of its investment potential. Griffon has maintained profitability over the past decade, with a revenue of $2.80 billion and an operating margin of 10.75%, which is commendable within its industry. However, the company's growth prospects are less promising, with a 3-year average EBITDA growth rate at 0%, lagging behind its peers.
ROIC vs WACC
Comparing Griffon's Return on Invested Capital (ROIC) of 11.97% to its Weighted Average Cost of Capital (WACC) of 7.8% indicates that the company is generating value for its shareholders. This is a positive sign of the company's profitability relative to its capital costs.
Conclusion
In conclusion, Griffon (GFF, Financial) is showing signs of significant overvaluation. The company's financial condition is weak, and although its profitability is reasonable, its growth is not keeping pace with industry counterparts. For a more comprehensive understanding of Griffon's financial health, investors are encouraged to review its 30-Year Financials here.
To discover high-quality companies that may deliver above-average returns, check out the GuruFocus High Quality Low Capex Screener.
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.
