The stock of FutureFuel (NYSE:FF, 30-year Financials) is estimated 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 $10.26 per share and the market cap of $448.8 million, FutureFuel stock is believed to be fairly valued. GF Value for FutureFuel is shown in the chart below.
Because FutureFuel is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth.
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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. FutureFuel has a cash-to-debt ratio of 493.24, which is better than 89% of the companies in Chemicals industry. The overall financial strength of FutureFuel is 8 out of 10, which indicates that the financial strength of FutureFuel is strong. This is the debt and cash of FutureFuel 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. FutureFuel has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $192.9 million and earnings of $0.44 a share. Its operating margin is -2.43%, which ranks worse than 88% of the companies in Chemicals industry. Overall, the profitability of FutureFuel is ranked 7 out of 10, which indicates fair profitability. This is the revenue and net income of FutureFuel 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 FutureFuel is -9.4%, which ranks worse than 85% of the companies in Chemicals industry. The 3-year average EBITDA growth is 14.7%, which ranks better than 70% of the companies in Chemicals 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, FutureFuel's ROIC was -4.49, while its WACC came in at 6.52. The historical ROIC vs WACC comparison of FutureFuel is shown below:
In summary, the stock of FutureFuel (NYSE:FF, 30-year Financials) is believed to be fairly valued. The company's financial condition is strong and its profitability is fair. Its growth ranks better than 70% of the companies in Chemicals industry. To learn more about FutureFuel stock, you can check out its 30-year Financials here.
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