– By GF value
The otter tail stock (NAS: OTTR, 30-year finances) is considered to be fair valued, 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 share’s price is significantly above the GF value line, it is overvalued and its future performance may 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 $ 48.89 per share and market cap of $ 2 billion, Otter Tail’s stock is estimated to be fair. The GF value for Otter Tail is shown in the table below.
Because Otter Tail is fairly valued, its long-term stock return is likely to be close to the growth rate of its business, which has averaged 0.6% over the past five years.
Since investing in companies with poor financial strength could result in a permanent loss of capital, investors should carefully consider the financial strength of a company before deciding whether or not to buy shares. Examining the cash-to-debt ratio and interest coverage can provide a good initial perspective on the financial strength of the business. Otter Tail has a cash to debt ratio of 0.00, which ranks in the bottom 10% of utilities – regulated companies. Based on this, GuruFocus ranks Otter Tail’s financial strength as 3 out of 10, which suggests a poor track record. Here is Otter Tail’s debt and cash flow over the past few years:
Investing in profitable businesses carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a business with high profit margins offers better performance potential than a business with low profit margins. Otter Tail has been profitable 8 years in the last 10 years. In the past 12 months, the company achieved sales of $ 917.1 million and earnings of $ 2.47 per share. Its operating margin of 16.66% in the mid-range companies in the Utilities – Regulated industry. Overall, GuruFocus rates Otter Tail’s profitability as fair. Here is Otter Tail’s revenue and bottom line for the past few years:
Growth is probably the most important factor in the valuation of a business. GuruFocus research has shown that growth is closely tied to the long-term performance of a company’s stocks. The faster a company grows, the more likely it is to create shareholder value, especially if the growth is profitable. The average annual growth rate of turnover over 3 years Otter Tail is 0.6%, which ranks among the average for companies in the Utilities – Regulated sector. The average growth rate of EBITDA over 3 years is 3.8%, which is in line with the average for companies in the Utilities – Regulated sector.
One can also assess a company’s profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). Return on Invested Capital (ROIC) measures how well 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 is expected to pay on average to all of its security holders to fund its assets. If the return on invested capital exceeds the weighted average cost of capital, the company is likely to create value for its shareholders. Over the past 12 months, Otter Tail’s ROIC is 5.36 while its WACC is 3.98. Otter Tail’s historical ROIC vs WACC comparison is shown below:
In summary, Otter Tail (NAS: OTTR, 30 years Financials) is estimated at fair value. The company’s financial situation is bad and its profitability is fair. Its growth is in the mid-range of companies in the Utilities – Regulated industry. To learn more about Otter Tail’s stock, you can view its 30-year financial data here.
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This article first appeared on GuruFocus.