The stock of Expeditors International of Washington (NAS:EXPD, 30-year Financials) appears to be fairly valued, 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 $108.76 per share and the market cap of $18.3 billion, Expeditors International of Washington stock shows every sign of being fairly valued. GF Value for Expeditors International of Washington is shown in the chart below.
Because Expeditors International of Washington is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which averaged 15.8% over the past three years and is estimated to grow 5.25% annually over the next three to five years.
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Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Thus, it is important to carefully review the financial strength of a company before deciding whether to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company. Expeditors International of Washington has a cash-to-debt ratio of 3.49, which is better than 87% of the companies in Transportation industry. GuruFocus ranks the overall financial strength of Expeditors International of Washington at 7 out of 10, which indicates that the financial strength of Expeditors International of Washington is fair. This is the debt and cash of Expeditors International of Washington over the past years:
It poses less risk to invest in profitable companies, especially those that have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. Expeditors International of Washington has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $10.1 billion and earnings of $4.08 a share. Its operating margin is 9.30%, which ranks better than 69% of the companies in Transportation industry. Overall, GuruFocus ranks the profitability of Expeditors International of Washington at 9 out of 10, which indicates strong profitability. This is the revenue and net income of Expeditors International of Washington 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 Expeditors International of Washington is 15.8%, which ranks better than 86% of the companies in Transportation industry. The 3-year average EBITDA growth rate is 12.3%, which ranks better than 69% of the companies in Transportation industry.
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average 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. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Expeditors International of Washington's return on invested capital is 41.53, and its cost of capital is 6.32. The historical ROIC vs WACC comparison of Expeditors International of Washington is shown below:
In conclusion, the stock of Expeditors International of Washington (NAS:EXPD, 30-year Financials) is estimated to be fairly valued. The company's financial condition is fair and its profitability is strong. Its growth ranks better than 69% of the companies in Transportation industry. To learn more about Expeditors International of Washington stock, you can check out its 30-year Financials here.
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