Central Garden & Pet Co (CENT, Financial) has recently gained a 3.75% increase in stock price, bringing a 12.38% gain over the last three months. With an Earnings Per Share (EPS) of 2.26, the question arises: Is the stock fairly valued? In this analysis, we will delve into the financial strength, profitability, growth, and valuation of Central Garden & Pet Co to answer this question. We invite readers to explore the following analysis for a comprehensive understanding of the company's value.
Company Introduction
Central Garden & Pet Co, with a mission to lead the future of the pet and garden industries, has nurtured happy and healthy homes for over forty years. The company boasts a portfolio of more than sixty-five brands including Pennington, Nylabone, Kaytee, Amdro, and Aqueon. With strong manufacturing and distribution capabilities, Central Garden & Pet Co is dedicated to helping lawns grow greener, gardens bloom bigger, pets live healthier, and communities grow stronger. Based in Walnut Creek, California, the company has offices across North America and Europe.
Understanding the GF Value
The GF Value is a proprietary measure that estimates the current intrinsic value of a stock. It is calculated based on historical multiples, a GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of business performance. The GF Value Line on our summary page provides an overview of the fair value that the stock should ideally be traded at.
Central Garden & Pet Co's stock, at its current price of $44.3 per share, is estimated to be fairly valued according to the GF Value. This suggests that the long-term return of its stock is likely to be close to the rate of its business growth.
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Financial Strength
Investing in companies with poor financial strength carries a higher risk of permanent loss of capital. Therefore, it is crucial to carefully review the financial strength of a company before deciding to buy its stock. Looking at the cash-to-debt ratio and interest coverage can provide a good understanding of the company's financial strength. Central Garden & Pet Co has a cash-to-debt ratio of 0.24, ranking lower than 63.38% of 1797 companies in the Consumer Packaged Goods industry. The overall financial strength of Central Garden & Pet Co is ranked 6 out of 10, indicating fair financial strength.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is typically less risky. Central Garden & Pet Co has been profitable 9 out of the past 10 years. Over the past twelve months, the company had a revenue of $3.30 billion and Earnings Per Share (EPS) of $2.26. Its operating margin is 6.55%, which ranks better than 60.65% of 1817 companies in the Consumer Packaged Goods industry. Overall, the profitability of Central Garden & Pet Co is ranked 8 out of 10, indicating strong profitability.
Growth is a crucial factor in the valuation of a company. 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 Central Garden & Pet Co is 14%, ranking better than 72.13% of 1719 companies in the Consumer Packaged Goods industry. The 3-year average EBITDA growth rate is 18.9%, ranking better than 69.69% of 1524 companies in the Consumer Packaged Goods industry.
ROIC vs WACC
Another method to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted average cost of capital (WACC). ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. The 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, Central Garden & Pet Co's ROIC was 5.96, while its WACC came in at 6.51.
Conclusion
In summary, the stock of Central Garden & Pet Co (CENT, Financial) is estimated to be fairly valued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 69.69% of 1524 companies in the Consumer Packaged Goods industry. To learn more about Central Garden & Pet Co stock, you can check out its 30-Year Financials here.
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