The stock of Cohen (AMEX:COHN, 30-year Financials) shows every sign of being 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 $23.576 per share and the market cap of $31.3 million, Cohen stock is believed to be modestly overvalued. GF Value for Cohen is shown in the chart below.
Because Cohen is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth, which averaged 11.7% over the past five years.
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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. Cohen has a cash-to-debt ratio of 5.31, which is in the middle range of the companies in Capital Markets industry. The overall financial strength of Cohen is 5 out of 10, which indicates that the financial strength of Cohen is fair. This is the debt and cash of Cohen 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. Cohen has been profitable 3 over the past 10 years. Over the past twelve months, the company had a revenue of $130.1 million and earnings of $6.82 a share. Its operating margin is 38.59%, which ranks better than 75% of the companies in Capital Markets industry. Overall, the profitability of Cohen is ranked 4 out of 10, which indicates poor profitability. This is the revenue and net income of Cohen 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 stock performance of a company. A faster growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Cohen is 11.7%, which ranks better than 69% of the companies in Capital Markets industry. The 3-year average EBITDA growth rate is 38.4%, which ranks better than 82% of the companies in Capital Markets 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, Cohen's return on invested capital is 1.06, and its cost of capital is 13.29. The historical ROIC vs WACC comparison of Cohen is shown below:
In closing, the stock of Cohen (AMEX:COHN, 30-year Financials) is believed to be modestly overvalued. The company's financial condition is fair and its profitability is poor. Its growth ranks better than 82% of the companies in Capital Markets industry. To learn more about Cohen stock, you can check out its 30-year Financials here.
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