Triumph Group Inc (TGI, Financial) recently experienced a notable daily gain of 32.93%, complementing a substantial three-month gain of 108.83%. However, with a reported Loss Per Share of $0.48, investors are faced with a critical question: Is the stock significantly overvalued? This article delves into the valuation analysis of Triumph Group, offering readers a detailed perspective on whether the current stock price reflects the company's true market value.
Company Overview
Triumph Group Inc designs, manufactures, and supports a diverse range of aerostructures, aircraft components, and systems for the aviation industry. With a global customer base in commercial, business, and military sectors, Triumph Group operates through two segments: Systems and Support, and Interiors. Despite its comprehensive portfolio and industry presence, a closer look at the company's financials reveals a stark contrast between its stock price of $16.31 and the GF Value of $10.43, suggesting a potential overvaluation. This juxtaposition sets the stage for an in-depth valuation analysis.
Understanding GF Value
The GF Value is a proprietary metric that estimates a stock's intrinsic value using historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance projections. If a stock's price significantly exceeds the GF Value Line, it may be overvalued, leading to potentially poor future returns. Conversely, a price well below the GF Value Line could indicate undervaluation and the possibility of higher returns. According to GuruFocus' valuation method, Triumph Group (TGI, Financial) is significantly overvalued at its current price of $16.31 per share.
Because of this significant overvaluation, Triumph Group's long-term stock return could be much lower than its future business growth.
Link: These companies may deliver higher future returns at reduced risk.Financial Strength Assessment
Assessing a company's financial strength is crucial before investing in its stock, as weak financials can lead to a higher risk of loss. Triumph Group's cash-to-debt ratio of 0.1 places it in a precarious position compared to 83.28% of its industry peers. With an overall financial strength rating of 3 out of 10, Triumph Group's fiscal health appears to be poor. The following chart displays the company's debt and cash over recent years:
Profitability and Growth Prospects
Investing in profitable companies usually carries less risk. Triumph Group has been profitable for 3 out of the last 10 years, with revenues of $1.40 billion and a Loss Per Share of $0.48 in the past 12 months. Its operating margin outperforms 72.64% of the Aerospace & Defense industry. However, the company's profitability is rated as poor by GuruFocus.
Regarding growth, a key valuation factor, Triumph Group's 3-year average annual revenue growth rate of -30.6% is lower than 95.85% of its industry counterparts. Similarly, its 3-year average EBITDA growth rate of -7.2% falls short of 65.67% of the industry.
Evaluating ROIC vs. WACC
A comparison of Return on Invested Capital (ROIC) and Weighted Average Cost of Capital (WACC) can also provide insight into a company's profitability. Triumph Group's ROIC of 16.98 is higher than its WACC of 11.44, indicating value creation for shareholders. The historical comparison of Triumph Group's ROIC versus WACC is depicted below:
Conclusion
In summary, Triumph Group (TGI, Financial) appears to be significantly overvalued. The company's financial health is weak, and its profitability and growth prospects do not support the current high stock price. Investors interested in a deeper understanding of Triumph Group's financials 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.
