- By GF Value
The stock of Crown Crafts (NAS:CRWS, 30-year Financials) appears to be modestly 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 $7.75 per share and the market cap of $77.4 million, Crown Crafts stock is estimated to be modestly overvalued. GF Value for Crown Crafts is shown in the chart below.
Warning! GuruFocus has detected 5 Warning Signs with CRWS. Click here to check it out.
CRWS 15-Year Financial Data
The intrinsic value of CRWS
Peter Lynch Chart of CRWS
Because Crown Crafts is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth, which averaged 3.2% over the past 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. Crown Crafts has a cash-to-debt ratio of 0.53, which is in the middle range of the companies in the industry of Manufacturing - Apparel & Accessories. The overall financial strength of Crown Crafts is 7 out of 10, which indicates that the financial strength of Crown Crafts is fair. This is the debt and cash of Crown Crafts 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. Crown Crafts has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $77.6 million and earnings of $0.73 a share. Its operating margin is 12.25%, which ranks better than 85% of the companies in the industry of Manufacturing - Apparel & Accessories. Overall, the profitability of Crown Crafts is ranked 7 out of 10, which indicates fair profitability. This is the revenue and net income of Crown Crafts over the past years:
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Crown Crafts is 3.2%, which ranks in the middle range of the companies in the industry of Manufacturing - Apparel & Accessories. The 3-year average EBITDA growth is 3.2%, which ranks in the middle range of the companies in the industry of Manufacturing - Apparel & Accessories.
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average cost of capital. 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. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Crown Crafts's return on invested capital is 15.75, and its cost of capital is 7.07. The historical ROIC vs WACC comparison of Crown Crafts is shown below:
In closing, Crown Crafts (NAS:CRWS, 30-year Financials) stock appears to be modestly overvalued. The company's financial condition is fair and its profitability is fair. Its growth ranks in the middle range of the companies in the industry of Manufacturing - Apparel & Accessories. To learn more about Crown Crafts stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.