Fabrinet (FN, Financial) has recently shown a notable daily gain of 10.85% and a 3-month gain of 9.06%. With an Earnings Per Share (EPS) of 7.53, investors might question if the stock is significantly overvalued. This article delves into Fabrinet's financials and market position to determine its true market value. Read on to understand our comprehensive valuation analysis.
Company Overview
Fabrinet is a key player in the outsourced manufacturing services industry, primarily serving OEMs that require precision manufacturing capabilities. With a strong presence in North America and Asia-Pacific, the company specializes in producing a variety of complex products such as tunable transponders, lasers, and sensors. Despite its current stock price of $209.31, the GF Value suggests a fair value of only $147.38, indicating that the stock might be significantly overvalued. Let's explore this further with a detailed financial analysis.
Understanding the GF Value
The GF Value is a proprietary measure indicating the intrinsic value of a stock, based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. For Fabrinet, the GF Value is set at $147.38, suggesting that its current price is significantly higher than its estimated fair value. This discrepancy points to Fabrinet being overvalued, potentially leading to poorer future returns compared to its business growth.
Financial Strength and Stability
Investing in companies with robust financial health is crucial to minimize risks of capital loss. Fabrinet boasts a cash-to-debt ratio of 124.55, ranking better than 89.6% of its peers in the Hardware industry. This strong balance sheet is reflected in its top financial strength rating of 10 out of 10 from GuruFocus.
Profitability and Growth Prospects
Consistent profitability is a good indicator of a company's performance and risk level. Fabrinet has maintained profitability over the past decade, with an operating margin of 9.58% that surpasses 76.45% of its industry counterparts. Moreover, the company's 3-year average annual revenue growth rate stands at 18.1%, indicating strong potential for continued success.
Efficiency in Capital Utilization
An effective way to gauge a company's profitability is to compare its Return on Invested Capital (ROIC) against its Weighted Average Cost of Capital (WACC). Fabrinet's ROIC is an impressive 27.06, significantly higher than its WACC of 9.68, highlighting efficient capital utilization.
Conclusion
Despite Fabrinet's strong financial health and profitability, its current stock price significantly exceeds its GF Value, suggesting it is overvalued. Investors should consider this analysis carefully when making investment decisions. For detailed financial insights on Fabrinet, visit 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.
