W.W. Grainger Inc (GWW, Financial) recently experienced a daily loss of 4.35%, yet it has gained 9.38% over the past three months. With an Earnings Per Share (EPS) of 35.86, investors are keen to understand if the stock is modestly overvalued. This article delves into a valuation analysis that aims to provide clarity on W.W. Grainger's current market position and future prospects.
Company Introduction
W.W. Grainger distributes a vast array of maintenance, repair, and operating products, with a customer base of about 5 million served through diverse channels, including online platforms and over 300 branches worldwide. The company's recent investments in e-commerce have cemented its status as the 11th-largest e-retailer in North America. With a current stock price of $775.14 and a Fair Value (GF Value) of $665.72, the question arises: is W.W. Grainger trading at a fair valuation?
Summarizing the GF Value
The GF Value is a unique measure of a stock's intrinsic value, incorporating historical trading multiples, a GuruFocus adjustment factor, and future business performance forecasts. W.W. Grainger (GWW, Financial) is currently deemed modestly overvalued by this metric. With a market cap of $36.90 billion and a GF Value of $665.72, the stock's price is higher than our estimated fair value, suggesting potential for a lower long-term return relative to the company's business growth.
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Financial Strength
Financial strength is vital for investors to consider, as it can indicate the risk of capital loss. W.W. Grainger's cash-to-debt ratio stands at 0.22, ranking below the median for its industry. However, its overall financial strength is rated 7 out of 10, suggesting a fair financial condition.
Profitability and Growth
Consistent profitability is less risky for potential investors. W.W. Grainger has maintained profitability for the past decade, with a robust operating margin of 15.67% that outperforms most of its industry peers. Furthermore, the company's growth rates in revenue and EBITDA are commendable, surpassing more than half of the competition within the Industrial Distribution industry.
ROIC vs. WACC
Evaluating a company's value creation involves comparing its Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC). W.W. Grainger's ROIC of 33.49 is significantly higher than its WACC of 11.59, indicating efficient value generation for shareholders.
Conclusion
Overall, W.W. Grainger (GWW, Financial) appears modestly overvalued. The company boasts a fair financial condition and strong profitability, with growth rates that are promising within its industry. To gain deeper insights into W.W. Grainger's financials, investors can explore the company's 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.
