Investors often grapple with the question of whether a stock is fairly valued, overvalued, or undervalued. For Verra Mobility Corp (VRRM, Financial), with a recent price of $20.3 and experiencing a daily change of -1.02%, alongside a 3-month gain of 5.16%, this question is particularly pertinent. The company's Earnings Per Share (EPS) of $0.47 serves as a critical indicator in this evaluation. Is Verra Mobility fairly valued at its current market price? This article aims to explore Verra Mobility's valuation through a detailed analysis.
Company Introduction
Verra Mobility Corp provides smart transportation solutions, focusing on technology and data intelligence to enhance transportation safety and ease. With operations in Commercial Services, Government Solutions, and Parking Solutions, the company generates the majority of its revenue from the Commercial Services segment. This segment provides tolling and violation management services to various stakeholders. A pivotal aspect of understanding Verra Mobility's value is comparing its stock price to the GF Value, an estimate of the stock's fair value. This comparison is essential for investors seeking to gauge the potential for future returns.
Summarize GF Value
The GF Value is a proprietary metric used to determine the intrinsic value of a stock. It is calculated by considering historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. If a stock's price significantly exceeds the GF Value Line, it may be overvalued and could lead to poor future returns. Conversely, if the price is well below the GF Value Line, it may be undervalued, indicating a potential for higher future returns.
Verra Mobility (VRRM, Financial) is considered fairly valued according to the GF Value, with a fair value estimate based on historical multiples, an internal adjustment reflecting the company's past business growth, and analyst estimates of future business performance. At the current price of $20.3 per share, Verra Mobility is trading close to its fair value, suggesting that the long-term return of its stock is likely to mirror the rate of its business growth.
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Financial Strength
Assessing the financial strength of a company is crucial to avoid the high risk of permanent capital loss. The cash-to-debt ratio and interest coverage are key indicators of financial robustness. Verra Mobility's cash-to-debt ratio of 0.11 ranks lower than 85.16% of its peers in the Construction industry, indicating a weaker financial position. With a financial strength rating of 4 out of 10, Verra Mobility's financial health is not as robust as one might prefer.
Profitability and Growth
Investing in profitable companies, particularly those with consistent profitability, is generally less risky. Verra Mobility has been profitable 4 out of the past 10 years, with a revenue of $792.40 million and Earnings Per Share (EPS) of $0.47 over the last twelve months. The company's operating margin of 26.19% ranks well within the Construction industry. However, the overall profitability rank of 5 out of 10 suggests that Verra Mobility's profitability is fair, but not exceptional.
Growth is a vital component in a company's valuation. Verra Mobility's 3-year average annual revenue growth rate of 18.5% is impressive, outpacing 84.33% of its industry counterparts. Similarly, the 3-year average EBITDA growth rate of 17.8% is a strong indicator of the company's value creation potential.
ROIC vs. WACC
Comparing a company's Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC) is another method to assess profitability. When ROIC exceeds WACC, it indicates value creation for shareholders. Verra Mobility's ROIC of 9.12% is higher than its WACC of 8.35%, suggesting that the company is generating adequate cash flow relative to the capital invested.
Conclusion
In conclusion, Verra Mobility (VRRM, Financial) appears to be fairly valued when considering its market price in relation to its GF Value. The company's financial condition is less than ideal, but its profitability is reasonable, and its growth rates are commendable within the Construction industry. For a more in-depth look at Verra Mobility's financials, interested investors can review the company's 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.
