Boyd Gaming (NYSE: BYD, 30 Financials) stock is estimated to be significantly overvalued, according to GuruFocus Value’s calculation. The GuruFocus Value is GuruFocus’s estimate of the fair value at which the stock is to trade. It is calculated based on the historical multiples at which the stock has traded, the company’s past growth, and analysts’ estimates of the company’s future performance. If a share’s price is significantly above the GF value line, it is overvalued and its future performance may be poor. On the other hand, if it is significantly below the GF value line, its future return is likely to be higher. At its current price of $ 62.4 per share and market cap of $ 7 billion, Boyd Gaming’s stock is giving every indication that it is significantly overvalued. The GF value for Boyd Gaming is shown in the table below.
Because Boyd Gaming is significantly overvalued, the long-term return on its stock is likely to be much lower than the future growth of its business.
Link: These companies can offer higher future returns with reduced risk.
It is always important to check the financial strength of a company before buying its shares. Investing in companies with low financial strength presents 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 business. Boyd Gaming has a cash-to-debt ratio of 0.15, which is worse than 73% of companies in the travel and entertainment industry. Boyd Gaming’s overall financial strength is 3 in 10, indicating that Boyd Gaming’s financial strength is poor. Here is Boyd Gaming’s debt and cash flow for the past several years:
It is less risky to invest in profitable companies, especially those whose profitability is constant over the long term. A business with high profit margins is generally a safer investment than one with low profit margins. Boyd Gaming has been profitable 5 in the past 10 years. In the past twelve months, the company reported sales of $ 2.3 billion and earnings of $ 1 per share. His the operating margin is 15.52%, which ranks better than 88% of companies in the travel and leisure sector. Overall, Boyd Gaming’s profitability is ranked 6 out of 10, indicating fair profitability. Here is Boyd Gaming’s sales and net income for the past few years:
Growth is probably the most important factor in the valuation of a business. GuruFocus research has shown that growth is closely linked to a company’s long-term market performance. A faster growing business creates more shareholder value, especially if the growth is profitable. Boyd Gaming’s 3-year average annual revenue growth is -2.6%, which ranks among the average for companies in the travel and entertainment industry. The average growth rate of EBITDA over 3 years is -14.8%, which is in line with the average for companies in the Travel and Leisure sector.
One can also assess 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) The extent to which a business 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 should pay on average to all of its security holders to finance its assets. If the return on invested capital exceeds the weighted average cost of capital, the company is likely to create value for its shareholders. Over the past 12 months, Boyd Gaming’s ROIC is 4.33 while his WACC is 10.40. Boyd Gaming’s historic ROIC vs WACC comparison is shown below:
In short, Boyd Gaming (NYSE: BYD, 30 Financials) stock appears to be significantly overvalued. The company’s financial situation is bad and its profitability is fair. Its growth is in the mid-range of companies in the travel and leisure industry. To learn more about Boyd Gaming’s stock, you can view its 30-year financial data here.
To find out about high-quality companies that can deliver above-average returns, please check out GuruFocus High Quality Low Capex Screener.