The stock of 51job (NAS:JOBS, 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 $73.27 per share and the market cap of $4.9 billion, 51job stock is estimated to be fairly valued. GF Value for 51job is shown in the chart below.
Because 51job is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which averaged 5.1% 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. 51job has a cash-to-debt ratio of 134.69, which is better than 88% of the companies in Business Services industry. GuruFocus ranks the overall financial strength of 51job at 7 out of 10, which indicates that the financial strength of 51job is fair. This is the debt and cash of 51job 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. 51job has been profitable 10 years over the past 10 years. During the past 12 months, the company had revenues of $540.6 million and earnings of $2.354 a share. Its operating margin of 23.64% better than 92% of the companies in Business Services industry. Overall, GuruFocus ranks 51job's profitability as strong. This is the revenue and net income of 51job over the past years:
Growth is probably one of the most important factors 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. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. 51job's 3-year average revenue growth rate is in the middle range of the companies in Business Services industry. 51job's 3-year average EBITDA growth rate is -0.9%, which ranks in the middle range of the companies in Business Services industry.
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average 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 return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, 51job's ROIC is 14.59 while its WACC came in at 6.02. The historical ROIC vs WACC comparison of 51job is shown below:
In conclusion, the stock of 51job (NAS:JOBS, 30-year Financials) shows every sign of being fairly valued. The company's financial condition is fair and its profitability is strong. Its growth ranks in the middle range of the companies in Business Services industry. To learn more about 51job stock, you can check out its 30-year Financials here.
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