The stock of Educational Development (NAS:EDUC, 30-year Financials) gives every indication of being modestly undervalued, 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 $12.53 per share and the market cap of $108.4 million, Educational Development stock appears to be modestly undervalued. GF Value for Educational Development is shown in the chart below.
Because Educational Development is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth, which averaged 21.1% over the past five years.
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Since investing in companies with low financial strength could result in permanent capital loss, investors must carefully review a company’s financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company’s financial strength. Educational Development has a cash-to-debt ratio of 0.11, which ranks worse than 87% of the companies in the industry of Media - Diversified. Based on this, GuruFocus ranks Educational Development’s financial strength as 6 out of 10, suggesting fair balance sheet. This is the debt and cash of Educational Development over the past years:
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Educational Development has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $204.6 million and earnings of $1.5 a share. Its operating margin is 7.80%, which ranks better than 67% of the companies in the industry of Media - Diversified. Overall, the profitability of Educational Development is ranked 8 out of 10, which indicates strong profitability. This is the revenue and net income of Educational Development 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 Educational Development is 21.1%, which ranks better than 89% of the companies in the industry of Media - Diversified. The 3-year average EBITDA growth is 22.7%, which ranks better than 76% of the companies in the industry of Media - Diversified.
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average 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. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Educational Development’s return on invested capital is 26.57, and its cost of capital is 6.85. The historical ROIC vs WACC comparison of Educational Development is shown below:
In short, Educational Development (NAS:EDUC, 30-year Financials) stock shows every sign of being modestly undervalued. The company's financial condition is fair and its profitability is strong. Its growth ranks better than 76% of the companies in the industry of Media - Diversified. To learn more about Educational Development stock, you can check out its 30-year Financials here.
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