– By GF Value
The stock of Village Super Market (NAS:VLGEA, 30-year Financials) appears to be modestly undervalued, 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 $24.04 per share and the market cap of $349.9 million, Village Super Market stock shows every sign of being modestly undervalued. GF Value for Village Super Market is shown in the chart below.
Because Village Super Market is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth, which averaged 3.8% over the past five years.
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. Village Super Market has a cash-to-debt ratio of 0.28, which is in the middle range of the companies in the industry of Retail – Defensive. The overall financial strength of Village Super Market is 5 out of 10, which indicates that the financial strength of Village Super Market is fair. This is the debt and cash of Village Super Market 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. Village Super Market has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $2 billion and earnings of $1.94 a share. Its operating margin is 1.84%, which ranks in the middle range of the companies in the industry of Retail – Defensive. Overall, the profitability of Village Super Market is ranked 6 out of 10, which indicates fair profitability. This is the revenue and net income of Village Super Market 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 performance of a company’s stock. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Village Super Market is 3.8%, which ranks in the middle range of the companies in the industry of Retail – Defensive. The 3-year average EBITDA growth rate is -1.2%, which ranks worse than 77% of the companies in the industry of Retail – Defensive.
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, Village Super Market’s ROIC is 4.52 while its WACC came in at 1.51. The historical ROIC vs WACC comparison of Village Super Market is shown below:
In summary, Village Super Market (NAS:VLGEA, 30-year Financials) stock is estimated to be modestly undervalued. The company’s financial condition is fair and its profitability is fair. Its growth ranks worse than 77% of the companies in the industry of Retail – Defensive. To learn more about Village Super Market stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.