With a daily loss of -2.96%, a 3-month gain of 11.69%, and an Earnings Per Share (EPS) of 3.71, Honda Motor Co Ltd (HMC, Financial) is a stock that has caught the attention of investors. The question that arises is whether the stock is modestly overvalued or not. In this article, we will delve into the valuation analysis of Honda Motor Co, providing you with a comprehensive understanding of its current market standing. So, let's commence our journey to uncover the intrinsic value of Honda Motor Co.
Introducing Honda Motor Co Ltd (HMC, Financial)
Established in 1948, Honda Motor Co Ltd (HMC) began as a motorcycle manufacturer. Today, it has diversified its portfolio to include automobiles, motorcycles, and power products like boat engines, generators, and lawnmowers. It also ventures into robotics and private jets. With its joint ventures, Honda sold 22.4 million cars and motorcycles in fiscal 2023, generating consolidated sales of JPY 16.9 trillion. The revenue breakdown is as follows: automobiles (63%), motorcycles (17%), with the remaining split between power products and financial services. Comparing the stock price of $33.81 with the GF Value of $28.72, it appears that the stock is modestly overvalued.
Understanding the GF Value of Honda Motor Co (HMC, Financial)
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It is based on historical trading multiples, a GuruFocus adjustment factor derived from past performance and growth, and future business performance estimates. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
Honda Motor Co (HMC, Financial) stock seems to be modestly overvalued according to the GuruFocus Value calculation. Given its current price of $33.81 per share and a market cap of $55.30 billion, the stock's long-term return is likely to be lower than its business growth because it is relatively overvalued.
Assessing the Financial Strength of Honda Motor Co (HMC, Financial)
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it is crucial to review a company's financial strength before deciding to buy shares. Honda Motor Co has a cash-to-debt ratio of 0.51, which ranks worse than 53.17% of 1230 companies in the Vehicles & Parts industry. With this, GuruFocus ranks Honda Motor Co's financial strength as 6 out of 10, suggesting a fair balance sheet.
Profitability and Growth of Honda Motor Co (HMC, Financial)
Investing in profitable companies, especially those with consistent profitability over the long term, is less risky. Honda Motor Co has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $128.10 billion and an Earnings Per Share (EPS) of $3.71. Its operating margin is 5.38%, which ranks better than 54.94% of 1265 companies in the Vehicles & Parts industry. Overall, Honda Motor Co's profitability is ranked 6 out of 10, indicating fair profitability.
Growth is probably the most important factor in the valuation of a company. A faster-growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Honda Motor Co is 5.4%, which ranks worse than 51.08% of 1206 companies in the Vehicles & Parts industry. The 3-year average EBITDA growth rate is 3.7%, which ranks worse than 55.61% of 1079 companies in the Vehicles & Parts industry.
ROIC vs WACC: Evaluating Profitability
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can also evaluate its profitability. 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 exceeds the WACC, the company is likely creating value for its shareholders. During the past 12 months, Honda Motor Co's ROIC was 3.76 while its WACC came in at 3.36.
Conclusion
In summary, the stock of Honda Motor Co (HMC, Financial) appears to be modestly overvalued. The company's financial condition is fair, and its profitability is fair. Its growth ranks worse than 55.61% of 1079 companies in the Vehicles & Parts industry. To learn more about Honda Motor Co stock, you can check out its 30-Year Financials here.
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