The stock of Seven & i Holdings Co (OTCPK:SVNDY, 30-year Financials) is estimated 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 $20.535 per share and the market cap of $36.3 billion, Seven & i Holdings Co stock shows every sign of being modestly overvalued. GF Value for Seven & i Holdings Co is shown in the chart below.
Because Seven & i Holdings Co is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth, which averaged 4.5% over the past 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. Seven & i Holdings Co has a cash-to-debt ratio of 1.41, which is better than 72% of the companies in the industry of Retail - Defensive. GuruFocus ranks the overall financial strength of Seven & i Holdings Co at 6 out of 10, which indicates that the financial strength of Seven & i Holdings Co is fair. This is the debt and cash of Seven & i Holdings Co 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. Seven & i Holdings Co has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $55.6 billion and earnings of $0.952 a share. Its operating margin is 6.57%, which ranks better than 81% of the companies in the industry of Retail - Defensive. Overall, the profitability of Seven & i Holdings Co is ranked 7 out of 10, which indicates fair profitability. This is the revenue and net income of Seven & i Holdings Co 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 Seven & i Holdings Co is 4.5%, which ranks in the middle range of the companies in the industry of Retail - Defensive. The 3-year average EBITDA growth rate is 7.5%, which ranks in the middle range of the companies in the industry of Retail - Defensive.
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, Seven & i Holdings Co's return on invested capital is 5.01, and its cost of capital is 2.69. The historical ROIC vs WACC comparison of Seven & i Holdings Co is shown below:
In closing, The stock of Seven & i Holdings Co (OTCPK:SVNDY, 30-year Financials) is estimated to be modestly overvalued. The company's financial condition is fair and its profitability is fair. Its growth ranks in the middle range of the companies in the industry of Retail - Defensive. To learn more about Seven & i Holdings Co stock, you can check out its 30-year Financials here.
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