Stantec Inc (STN, Financial) has recently experienced a notable daily gain of 8.98%, alongside a modest three-month gain of 5.25%. With an Earnings Per Share (EPS) of $1.97, investors may question whether the stock is significantly overvalued. This article delves into the valuation analysis of Stantec, offering insights into its current market position and future prospects.
Company Introduction
Stantec Inc (STN, Financial) is a leader in sustainable engineering, architecture, and environmental consulting, with a diverse geographic presence across Canada, the United States, and globally. Operating through five business units—infrastructure, water, buildings, environmental services, and energy and resources—Stantec provides comprehensive professional services throughout all project phases. Despite its current stock price of $68.7, the GF Value suggests a fair value estimate of $49.03, indicating a potential overvaluation. This initial comparison sets the stage for a deeper analysis of Stantec's intrinsic value.
Summarize GF Value
The GF Value is a unique measure of a stock's intrinsic value, calculated using historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. Stantec (STN, Financial) appears to be significantly overvalued according to this method. A stock's fair value is influenced by its historical multiples, internal adjustments based on past business growth, and analyst estimates for future performance. When a stock's price is substantially above the GF Value Line, it may be overvalued, suggesting poorer future returns. Conversely, a price below the GF Value Line could indicate undervaluation and higher potential returns. With a market cap of $7.60 billion, Stantec's current share price signals significant overvaluation.
Financial Strength
Assessing a company's financial strength is crucial before investing. Stantec's cash-to-debt ratio of 0.1 is lower than 86.63% of companies in the Construction industry, signaling higher risk. However, with a financial strength rating of 6 out of 10, Stantec maintains a fair financial position.
Profitability and Growth
Stantec's consistent profitability over the past decade underlines its resilience and potential for less risky investments. With a 5.75% operating margin, it outperforms 55.34% of its industry peers. Additionally, Stantec's profitability is deemed strong by GuruFocus. The company's growth also appears promising, with its 3-year average revenue growth rate surpassing 57.62% of competitors in the Construction industry. This growth, paired with a 3-year average EBITDA growth rate of 5.5%, places Stantec in a favorable position.
ROIC vs WACC
Comparing the Return on Invested Capital (ROIC) to the Weighted Average Cost of Capital (WACC) is another method to gauge profitability. Stantec's ROIC of 5.45 is currently below its WACC of 7.28, suggesting challenges in creating shareholder value. The historical ROIC vs WACC comparison provides further insights into the company's financial performance.
Conclusion
In summary, Stantec (STN, Financial) is showing clear signs of being significantly overvalued. While the company's financial health is fair and its profitability strong, its growth outpaces more than half of its industry counterparts. For a more detailed understanding of Stantec's financials, interested investors can explore 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.
