The stock of Optex Systems Holdings (OTCPK:OPXS, 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 $1.8 per share and the market cap of $15.3 million, Optex Systems Holdings stock is believed to be fairly valued. GF Value for Optex Systems Holdings is shown in the chart below.
Because Optex Systems Holdings is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which averaged 9.1% 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. Optex Systems Holdings has a cash-to-debt ratio of 2.70, which which ranks better than 70% of the companies in Aerospace & Defense industry. The overall financial strength of Optex Systems Holdings is 8 out of 10, which indicates that the financial strength of Optex Systems Holdings is strong. This is the debt and cash of Optex Systems Holdings 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. Optex Systems Holdings has been profitable 6 over the past 10 years. Over the past twelve months, the company had a revenue of $24.5 million and earnings of $0.28 a share. Its operating margin is 9.16%, which ranks better than 68% of the companies in Aerospace & Defense industry. Overall, the profitability of Optex Systems Holdings is ranked 4 out of 10, which indicates poor profitability. This is the revenue and net income of Optex Systems Holdings 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 Optex Systems Holdings is 9.1%, which ranks better than 72% of the companies in Aerospace & Defense industry. The 3-year average EBITDA growth rate is 251.9%, which ranks better than 99% of the companies in Aerospace & Defense 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, Optex Systems Holdings's return on invested capital is 13.75, and its cost of capital is 5.93. The historical ROIC vs WACC comparison of Optex Systems Holdings is shown below:
To conclude, The stock of Optex Systems Holdings (OTCPK:OPXS, 30-year Financials) is believed to be fairly valued. The company's financial condition is strong and its profitability is poor. Its growth ranks better than 99% of the companies in Aerospace & Defense industry. To learn more about Optex Systems Holdings stock, you can check out its 30-year Financials here.
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