The stock of Limbach Holdings (NAS:LMB, 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 $8.86 per share and the market cap of $90.8 million, Limbach Holdings stock gives every indication of being significantly overvalued. GF Value for Limbach Holdings is shown in the chart below.
Because Limbach Holdings is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 2.7% over the past five years.
Link: These companies may deliever higher future returns at reduced risk.
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. Limbach Holdings has a cash-to-debt ratio of 0.69, which which ranks in the middle range of the companies in Construction industry. The overall financial strength of Limbach Holdings is 5 out of 10, which indicates that the financial strength of Limbach Holdings is fair. This is the debt and cash of Limbach Holdings 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. Limbach Holdings has been profitable 3 over the past 10 years. Over the past twelve months, the company had a revenue of $542.8 million and earnings of $0.48 a share. Its operating margin is 2.92%, which ranks in the middle range of the companies in Construction industry. Overall, the profitability of Limbach Holdings is ranked 3 out of 10, which indicates poor profitability. This is the revenue and net income of Limbach Holdings over the past years:
Growth is probably one of the most important factors 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. If a company’s business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. Limbach Holdings’s 3-year average revenue growth rate is in the middle range of the companies in Construction industry. Limbach Holdings’s 3-year average EBITDA growth rate is 12.6%, which ranks better than 69% of the companies in Construction industry.
One can also evaluate a company’s profitability by comparing its return on invested capital (ROIC) to its weighted average 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 return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, Limbach Holdings’s ROIC is 9.25 while its WACC came in at 9.65. The historical ROIC vs WACC comparison of Limbach Holdings is shown below:
In closing, the stock of Limbach Holdings (NAS:LMB, 30-year Financials) is estimated to be significantly overvalued. The company's financial condition is fair and its profitability is poor. Its growth ranks better than 69% of the companies in Construction industry. To learn more about Limbach Holdings stock, you can check out its 30-year Financials here.
To find out the high quality companies that may deliever above average returns, please check out GuruFocus High Quality Low Capex Screener.
