West Fraser Timber Co.Ltd (WFG, Financial) recently experienced a notable daily gain of 10.59%, complementing its 3-month gain of 16.52%. Despite these impressive gains, the company's Loss Per Share stands at $0.55. This leads to a pivotal question: is the stock modestly overvalued? To address this query, we delve into a valuation analysis that scrutinizes West Fraser Timber Co.Ltd's financials and market position, providing readers with a comprehensive understanding of its current valuation.
Company Introduction
West Fraser Timber Co.Ltd (WFG, Financial) is a prominent softwood lumber company with a diversified portfolio that includes wood panels and pulp products. Post its acquisition of Norbord in 2021, the company has cemented its status as one of the world's leading producers of oriented strand board (OSB). With a current stock price of $85.08 and a Fair Value (GF Value) estimated at $70.03, it's crucial to juxtapose these figures to discern the company's genuine market value.
Summarize GF Value
The GF Value is a proprietary measure that reflects West Fraser Timber Co.Ltd's intrinsic value, incorporating historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. When a stock's price significantly exceeds the GF Value Line, it may be considered overvalued, potentially leading to poorer future returns. Conversely, a price below this line could signify undervaluation and the prospect of higher returns. With a market cap of $7.10 billion, West Fraser Timber Co.Ltd appears modestly overvalued at its current price.
Given this valuation, the long-term return of West Fraser Timber Co.Ltd's stock could be less than the company's business growth rate. This assessment is vital for investors considering the stock's future performance.
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Financial Strength
Investing in companies with robust financial strength is crucial to mitigate the risk of capital loss. West Fraser Timber Co.Ltd boasts a commendable cash-to-debt ratio of 2.27, outperforming 79.51% of its peers in the Forest Products industry. The company's financial strength is fair, with a GuruFocus rating of 7 out of 10.
Profitability and Growth
Consistent profitability is a hallmark of a less risky investment. West Fraser Timber Co.Ltd has maintained profitability for 9 out of the past 10 years. Despite a recent Loss Per Share of $0.55, the company's operating margin is -0.49%, ranking it in a weaker position compared to industry counterparts. However, its overall profitability is strong, with a rank of 9 out of 10.
Furthermore, growth is a critical valuation factor, and West Fraser Timber Co.Ltd's 3-year average annual revenue growth of 25.3% outshines 90.58% of the industry. Its EBITDA growth rate is an impressive 235.6%, ranking better than 98.34% of its industry peers.
ROIC vs WACC
Comparing a company's Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC) is another way to gauge profitability. Ideally, the ROIC should exceed the WACC to denote efficient cash flow generation. Currently, West Fraser Timber Co.Ltd's ROIC is -0.28, and its WACC is 10.27, highlighting an area for improvement.
Conclusion
In conclusion, West Fraser Timber Co.Ltd (WFG, Financial) is considered modestly overvalued based on the GF Value. The company's financial health is fair, and its profitability is robust, with growth that ranks exceptionally well within the Forest Products industry. For an in-depth look at West Fraser Timber Co.Ltd's financial history, investors can explore 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.
