The stock of West Fraser Timber Co.Ltd (NYSE:WFG, 30-year Financials) is estimated to be fairly valued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $66.46 per share and the market cap of $8.2 billion, West Fraser Timber Co.Ltd stock gives every indication of being fairly valued. GF Value for West Fraser Timber Co.Ltd is shown in the chart below.
Because West Fraser Timber Co.Ltd is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which averaged 9.3% over the past three years and is estimated to grow 5.01% annually over the next three to five years.
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Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. West Fraser Timber Co.Ltd has a cash-to-debt ratio of 0.91, which which ranks better than 73% of the companies in Forest Products industry. The overall financial strength of West Fraser Timber Co.Ltd is 7 out of 10, which indicates that the financial strength of West Fraser Timber Co.Ltd is fair. This is the debt and cash of West Fraser Timber Co.Ltd over the past years:
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. West Fraser Timber Co.Ltd has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of $4.4 billion and earnings of $8.446 a share. Its operating margin is 18.77%, which ranks better than 94% of the companies in Forest Products industry. Overall, the profitability of West Fraser Timber Co.Ltd is ranked 8 out of 10, which indicates strong profitability. This is the revenue and net income of West Fraser Timber Co.Ltd over the past years:
Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term performance of a company's stock. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of West Fraser Timber Co.Ltd is 9.3%, which ranks better than 81% of the companies in Forest Products industry. The 3-year average EBITDA growth rate is 12.9%, which ranks better than 71% of the companies in Forest Products industry.
Another way to look at the profitability of a company is to compare its return on invested capital and the weighted cost of capital. 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. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, West Fraser Timber Co.Ltd's return on invested capital is 18.98, and its cost of capital is 14.66. The historical ROIC vs WACC comparison of West Fraser Timber Co.Ltd is shown below:
In summary, The stock of West Fraser Timber Co.Ltd (NYSE:WFG, 30-year Financials) is believed to be fairly valued. The company's financial condition is fair and its profitability is strong. Its growth ranks better than 71% of the companies in Forest Products industry. To learn more about West Fraser Timber Co.Ltd stock, you can check out its 30-year Financials here.
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