The stock of CNH Industrial NV (NYSE:CNHI, 30-year Financials) gives every indication of being significantly overvalued, 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 $16.2 per share and the market cap of $21.9 billion, CNH Industrial NV stock shows every sign of being significantly overvalued. GF Value for CNH Industrial NV is shown in the chart below.
Because CNH Industrial NV is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which is estimated to grow 2.38% annually over the next three to five years.
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It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. CNH Industrial NV has a cash-to-debt ratio of 0.30, which is worse than 70% of the companies in the industry of Farm & Heavy Construction Machinery. The overall financial strength of CNH Industrial NV is 4 out of 10, which indicates that the financial strength of CNH Industrial NV is poor. This is the debt and cash of CNH Industrial NV 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. CNH Industrial NV has been profitable 8 over the past 10 years. Over the past twelve months, the company had a revenue of $28 billion and loss of $0.03 a share. Its operating margin is 7.02%, which ranks in the middle range of the companies in the industry of Farm & Heavy Construction Machinery. Overall, the profitability of CNH Industrial NV is ranked 5 out of 10, which indicates fair profitability. This is the revenue and net income of CNH Industrial NV 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 CNH Industrial NV is -1.7%, which ranks worse than 66% of the companies in the industry of Farm & Heavy Construction Machinery. The 3-year average EBITDA growth rate is -22.7%, which ranks worse than 86% of the companies in the industry of Farm & Heavy Construction Machinery.
Another way to evaluate a company’s profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). 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. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, CNH Industrial NV’s ROIC was 0.51, while its WACC came in at 6.90. The historical ROIC vs WACC comparison of CNH Industrial NV is shown below:
In closing, the stock of CNH Industrial NV (NYSE:CNHI, 30-year Financials) appears to be significantly overvalued. The company's financial condition is poor and its profitability is fair. Its growth ranks worse than 86% of the companies in the industry of Farm & Heavy Construction Machinery. To learn more about CNH Industrial NV stock, you can check out its 30-year Financials here.
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