The stock of Macquarie Infrastructure (NYSE:MIC, 30-year Financials) appears to be modestly overvalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $31.44 per share and the market cap of $2.7 billion, Macquarie Infrastructure stock appears to be modestly overvalued. GF Value for Macquarie Infrastructure is shown in the chart below.
Because Macquarie Infrastructure is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth.
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It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have 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 company. Macquarie Infrastructure has a cash-to-debt ratio of 0.97, which is better than 76% of the companies in Transportation industry. The overall financial strength of Macquarie Infrastructure is 4 out of 10, which indicates that the financial strength of Macquarie Infrastructure is poor. This is the debt and cash of Macquarie Infrastructure over the past years:
It is less risky to invest in profitable companies, especially those with consistent profitability over long term. A company with high profit margins is usually a safer investment than those with low profit margins. Macquarie Infrastructure has been profitable 8 over the past 10 years. Over the past twelve months, the company had a revenue of $1.1 billion and loss of $10.65 a share. Its operating margin is 7.10%, which ranks in the middle range of the companies in Transportation industry. Overall, the profitability of Macquarie Infrastructure is ranked 4 out of 10, which indicates poor profitability. This is the revenue and net income of Macquarie Infrastructure over the past years:
Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term performance of a company's stock. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Macquarie Infrastructure is -19%, which ranks in the bottom 10% of the companies in Transportation industry. The 3-year average EBITDA growth rate is -38.4%, which ranks in the bottom 10% of the companies in Transportation industry.
Another way to look at the profitability of a company is to compare its return on invested capital and the weighted cost of capital. Return on invested capital (ROIC) measures how well a company 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 its security holders to finance its assets. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, Macquarie Infrastructure's return on invested capital is 7.55, and its cost of capital is 9.07. The historical ROIC vs WACC comparison of Macquarie Infrastructure is shown below:
To conclude, The stock of Macquarie Infrastructure (NYSE:MIC, 30-year Financials) shows every sign of being modestly overvalued. The company's financial condition is poor and its profitability is poor. Its growth ranks in the bottom 10% of the companies in Transportation industry. To learn more about Macquarie Infrastructure stock, you can check out its 30-year Financials here.
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