The stock of CAI International (NYSE:CAI, 30-year Financials) is estimated to be significantly 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 $45.35 per share and the market cap of $783.9 million, CAI International stock gives every indication of being significantly overvalued. GF Value for CAI International is shown in the chart below.
Because CAI International is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 0.9% over the past five years.
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Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. CAI International has a cash-to-debt ratio of 0.03, which which ranks in the bottom 10% of the companies in Business Services industry. The overall financial strength of CAI International is 3 out of 10, which indicates that the financial strength of CAI International is poor. This is the debt and cash of CAI International over the past years:
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. CAI International has been profitable 10 years over the past 10 years. During the past 12 months, the company had revenues of $324.1 million and earnings of $1.06 a share. Its operating margin of 42.64% better than 98% of the companies in Business Services industry. Overall, GuruFocus ranks CAI International's profitability as strong. This is the revenue and net income of CAI International over the past years:
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of CAI International is 0.9%, which ranks in the middle range of the companies in Business Services industry. The 3-year average EBITDA growth is 12%, which ranks in the middle range of the companies in Business Services industry.
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). 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. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, CAI International's ROIC was 4.82, while its WACC came in at 5.17. The historical ROIC vs WACC comparison of CAI International is shown below:
In short, the stock of CAI International (NYSE:CAI, 30-year Financials) shows every sign of being significantly overvalued. The company's financial condition is poor and its profitability is strong. Its growth ranks in the middle range of the companies in Business Services industry. To learn more about CAI International stock, you can check out its 30-year Financials here.
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