Encore Wire Corp (WIRE, Financial) experienced a daily loss of 3.93%, with a 3-month gain of 0.95%. The Earnings Per Share (EPS) stands at 30.76. The question that arises is whether the stock is modestly overvalued. This article offers an in-depth valuation analysis. Let's dive into the financials and operations of Encore Wire (WIRE) to answer this question.
Company Overview
Encore Wire Corp is a leading manufacturer of electrical building wire and cable. The company supplies building wire for interior electrical wiring in commercial and industrial buildings, homes, apartments, and manufactured housing. Its principal customers are wholesale electrical distributors who sell building wire and other products to electrical contractors. The company's electrical building wire product line consists primarily of NM-B cable, UF-B cable, THHN/THWN-2, XHHW-2, RHH/RHW-2, and other types of wire products, including tray cable, metal-clad, and armored cable.
At its current price of $179.54 per share and a market cap of $3 billion, Encore Wire's stock appears to be modestly overvalued. The following analysis provides a deeper understanding of the company's value.
An Overview of GF Value
The GF Value is a unique measure of a stock's intrinsic value, computed based on historical trading multiples, a GuruFocus adjustment factor based on the company's past performance and growth, and future business performance estimates. The GF Value Line provides a clear indication of the fair value that the stock should be trading at.
Encore Wire's stock appears to be modestly overvalued according to the GF Value calculation. This suggests that the long-term return of its stock is likely to be lower than its business growth.
Financial Strength
Before investing in a company, it's crucial to assess its financial strength. Companies with weak financial health pose a higher risk of permanent loss. A great way to understand a company's financial strength is by looking at its cash-to-debt ratio and interest coverage. Encore Wire boasts a cash-to-debt ratio of 10,000, which is better than 99.82% of companies in the Industrial Products industry. This indicates that the financial strength of Encore Wire is strong.
Profitability and Growth
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Encore Wire has been profitable for 10 years over the past decade. During the past 12 months, the company had revenues of $2.80 billion and Earnings Per Share (EPS) of $30.76. Its operating margin of 25.82% is better than 96.03% of companies in the Industrial Products industry. Overall, GuruFocus ranks Encore Wire's profitability as strong.
One of the most critical factors in the valuation of a company is growth. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Encore Wire is 36.7%, which ranks better than 92.99% of companies in the Industrial Products industry. The 3-year average EBITDA growth is 125%, which ranks better than 98.68% of companies in the Industrial Products industry.
ROIC vs WACC
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Encore Wire's ROIC was 46.67, while its WACC came in at 14.2.
Conclusion
In summary, the stock of Encore Wire gives every indication of being modestly overvalued. The company's financial condition is strong, and its profitability is robust. Its growth ranks better than 98.68% of companies in the Industrial Products industry. To learn more about Encore Wire stock, you can check out its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
