- By GF Value
The stock of Manchester United PLC (NYSE:MANU, 30-year Financials) gives every indication of being 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 $16.76 per share and the market cap of $2.7 billion, Manchester United PLC stock gives every indication of being modestly overvalued. GF Value for Manchester United PLC is shown in the chart below.
Warning! GuruFocus has detected 5 Warning Signs with MANU. Click here to check it out.
MANU 15-Year Financial Data
The intrinsic value of MANU
Peter Lynch Chart of MANU
Because Manchester United PLC is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth.
Link: These companies may deliever higher future returns at reduced risk.
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. Manchester United PLC has a cash-to-debt ratio of 0.15, which is worse than 72% of the companies in Travel & Leisure industry. The overall financial strength of Manchester United PLC is 3 out of 10, which indicates that the financial strength of Manchester United PLC is poor. This is the debt and cash of Manchester United PLC over the past years:
It poses less risk to invest in profitable companies, especially those that have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. Manchester United PLC has been profitable 7 over the past 10 years. Over the past twelve months, the company had a revenue of $628.6 million and loss of $0.167 a share. Its operating margin is -4.89%, which ranks in the middle range of the companies in Travel & Leisure industry. Overall, GuruFocus ranks the profitability of Manchester United PLC at 5 out of 10, which indicates fair profitability. This is the revenue and net income of Manchester United PLC over the past years:
Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term stock performance of a company. A faster growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Manchester United PLC is -5%, which ranks in the middle range of the companies in Travel & Leisure industry. The 3-year average EBITDA growth rate is -13.2%, which ranks worse than 70% of the companies in Travel & Leisure industry.
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted 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 ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Manchester United PLC's ROIC was -1.32, while its WACC came in at 5.24. The historical ROIC vs WACC comparison of Manchester United PLC is shown below:
In closing, the stock of Manchester United PLC (NYSE:MANU, 30-year Financials) shows every sign of being modestly overvalued. The company's financial condition is poor and its profitability is fair. Its growth ranks worse than 70% of the companies in Travel & Leisure industry. To learn more about Manchester United PLC 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.
This article first appeared on GuruFocus.