In the volatile world of stock trading, Scholastic Corp (SCHL, Financial) has recently experienced a notable daily loss of 11.62%, alongside a three-month decline of 6.82%. However, with an Earnings Per Share (EPS) of 1.46, the question arises: is Scholastic modestly undervalued? This article delves into the valuation analysis of Scholastic, providing a detailed exploration of its financial health, profitability, and growth prospects to determine its true market value.
Company Introduction
Scholastic Corp is a prominent name in the publishing and education media industry, renowned for its extensive collection of children's books and educational materials. The company boasts an impressive portfolio, including exclusive rights to blockbuster series like Harry Potter and The Hunger Games, as well as beloved original titles such as Clifford the Big Red Dog and Goosebumps. With a diversified business model spanning Children's Book Publishing and Distribution, Education Solutions, and International segments, Scholastic's financial footprint is significant. The company's current stock price of $36.66 stands in contrast to the GF Value of $45.35, suggesting a potential undervaluation worth investigating.
Summarize GF Value
The GF Value is a unique measure of intrinsic value, meticulously calculated by incorporating historical trading multiples, a GuruFocus adjustment factor based on past performance, and projected future business outcomes. According to this valuation method, Scholastic (SCHL, Financial) appears to be modestly undervalued. The stock price, which ideally should align with the GF Value Line, is currently below this benchmark, indicating that Scholastic may offer a promising investment opportunity with higher potential future returns.
Given its relative undervaluation, Scholastic's stock may yield a return that outpaces its business growth over the long term.
Financial Strength
Before investing in any stock, assessing the company's financial strength is crucial. Scholastic's cash-to-debt ratio of 1.12 places it above half of its peers in the Media - Diversified industry, signaling a robust financial position. With an overall financial strength rating of 7 out of 10, Scholastic demonstrates a fair capacity to manage its financial obligations.
Profitability and Growth
Consistent profitability is a key indicator of a company's investment potential. Scholastic has maintained profitability over the past decade, with a solid operating margin of 3.91%, ranking well within its industry. The company's profitability rank of 6 out of 10 reflects its fair performance in generating profits for shareholders. However, growth remains a critical factor, and Scholastic's 3-year average revenue growth rate surpasses that of 62.28% of its industry counterparts. Despite this, its EBITDA growth rate has not shown an increase, which may warrant further investigation.
ROIC vs WACC
An insightful way to gauge profitability is by comparing a company's Return on Invested Capital (ROIC) against its Weighted Average Cost of Capital (WACC). Scholastic's ROIC of 4.14 is currently below its WACC of 10.15, suggesting that the company may not be generating sufficient returns on its investments.
Conclusion
Overall, Scholastic (SCHL, Financial) presents signs of being modestly undervalued. The company's financial condition and profitability are fair, but its growth and ability to create shareholder value could be areas for improvement. For investors looking to dive deeper into Scholastic's financials, a review of its 30-Year Financials is recommended.
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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.
