The stock of Hwa Fong Rubber (Thailand) PCL (BKK: HFT, 30-year Financials) gives all indications of being significantly overvalued, according to the GuruFocus value calculation. The GuruFocus Value is GuruFocus’s estimate of the fair value at which the stock is to trade. It is calculated based on the historical multiples at which the stock has traded, the company’s past growth, and analysts’ estimates of the company’s future performance. If a stock’s price is significantly above the GF value line, it is overvalued and its future performance is likely to be poor. On the other hand, if it is significantly below the GF value line, its future return is likely to be higher. At its current price of 7 yen per share and market cap of 4.6 billion yen, the PCL stock of Hwa Fong Rubber (Thailand) would be significantly overvalued. The GF value for Hwa Fong Rubber (Thailand) PCL is shown in the table below.
Since Hwa Fong Rubber (Thailand) PCL is significantly overvalued, the long-term return on its shares is likely to be much lower than the future growth of its business.
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It is always important to check the financial strength of a company before buying its shares. Investing in companies with low financial strength presents a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a business. Hwa Fong Rubber (Thailand) PCL has a cash-to-debt ratio of 927.72, which is over 94% of companies in the vehicle and parts sector. The overall financial strength of Hwa Fong Rubber (Thailand) PCL is 9 out of 10, indicating that the financial strength of Hwa Fong Rubber (Thailand) PCL is strong. Here is the debt and cash flow of Hwa Fong Rubber (Thailand) PCL over the past few years:
Companies that have historically been profitable over the long term pose less risk to investors who want to buy stocks. Higher profit margins usually dictate a better investment compared to a business with lower profit margins. Hwa Fong Rubber (Thailand) PCL has been profitable 10 in the past 10 years. In the past twelve months, the company achieved sales of 2.8 billion yen and profit of 0.645 yen per share. His the operating margin is 18.29%, which ranks better than 93% of companies in the vehicle and parts industry. Overall, the profitability of Hwa Fong Rubber (Thailand) PCL is ranked 7 out of 10, indicating acceptable profitability. Here is Hwa Fong Rubber (Thailand) PCL’s sales and net profit for the past few years:
Growth is probably one of the most important factors in the valuation of a business. GuruFocus research has found that growth is closely tied to the long-term performance of a company’s stocks. If a company’s business is growing, the business typically creates value for its shareholders, especially if the growth is profitable. Likewise, if the income and profits of a business decrease, the value of the business will decrease. Hwa Fong Rubber (Thailand) PCL’s 3-year average revenue growth rate is within the average for companies in the Vehicles and Parts industry. Hwa Fong Rubber (Thailand) PCL’s 3-year average EBITDA growth rate is 13.9%, which ranks better than 80% of companies in the Vehicles and Parts industry.
Another way to determine the profitability of a business is to compare its return on invested capital to the weighted average cost of capital. Return on invested capital (ROIC) The extent to which a business 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 should pay, on average, to all of its security holders to finance its assets. When the ROIC is higher than the WACC, it implies that the company creates value for the shareholders. In the past 12 months, the return on invested capital of Hwa Fong Rubber (Thailand) PCL is 17.70 and its cost of capital is 9.01. Hwa Fong Rubber (Thailand) PCL’s historical ROIC vs WACC comparison is shown below:
In conclusion, Hwa Fong Rubber (Thailand) PCL (BKK: HFT, 30 years Financials) stock seems to be significantly overvalued. The company’s financial position is solid and its profitability is fair. Its growth ranks better than 80% of companies in the vehicle and parts industry. To learn more about Hwa Fong Rubber (Thailand) PCL shares, you can view its 30-year financial data here.
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