Amidst the daily stock market fluctuations, Carpenter Technology Corp (CRS, Financial) has experienced a notable 6.91% change in stock price. Over the past three months, the company has seen a 25.25% gain, reflecting a positive trajectory in investor sentiment. With an Earnings Per Share (EPS) of $2.17, investors are prompted to consider whether Carpenter Technology (CRS) is modestly overvalued at its current market price. This article dives into a valuation analysis to explore this question and provides insights into the company's financial health and future prospects.
Company Introduction
Carpenter Technology Corp supplies specialty metals to a diverse array of industries, including aerospace, defense, medical, and energy. The company's primary operations are conducted through its Specialty Alloys Operations and Performance Engineered Products segments, with the former being the major revenue generator. Currently, Carpenter Technology's stock price stands at $73.3, with a market cap of $3.60 billion, which prompts an evaluation against the GF Value of $58.26 to determine its fair market value.
Summarize GF Value
The GF Value is a proprietary measure that estimates the intrinsic value of a stock based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. When a stock's price significantly deviates from the GF Value Line, it suggests potential overvaluation or undervaluation, influencing future returns. Carpenter Technology (CRS, Financial) is considered modestly overvalued, with its stock price exceeding the GF Value Line. This suggests that the long-term return on its stock may be lower than the company's business growth.
Link: These companies may deliver higher future returns at reduced risk.
Financial Strength
A company's financial strength is crucial in assessing the risk of capital loss. Carpenter Technology's cash-to-debt ratio is 0.03, ranking it lower than many of its peers in the Industrial Products industry. Despite this, the company's overall financial strength is rated as fair, with a score of 6 out of 10.
Profitability and Growth
Profitable companies are generally less risky investments, particularly those with a history of consistent profitability. Carpenter Technology has been profitable for 8 out of the past 10 years, with a solid operating margin that surpasses more than half of its industry competitors. The company's profitability is deemed fair by GuruFocus standards.
In terms of growth, Carpenter Technology's 3-year average annual revenue growth is 4.6%, which is not leading in its industry. However, its EBITDA growth rate is impressive, ranking higher than 69.14% of its peers.
ROIC vs WACC
Comparing a company's Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC) provides insight into its profitability and value creation. Carpenter Technology's ROIC currently stands at 5.83, which is lower than its WACC of 11.95, indicating that the company may not be creating value for shareholders.
Conclusion
Carpenter Technology (CRS, Financial) is considered modestly overvalued based on the GF Value. With fair financial condition and profitability, coupled with decent growth rankings in the Industrial Products industry, the company presents a mixed investment profile. For a more detailed financial overview, investors can examine Carpenter Technology's 30-Year Financials here.
To discover high-quality companies that may deliver above-average returns, please visit 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.
