With a daily gain of 3.61% and an Earnings Per Share (EPS) (EPS) of $3.03, Otis Worldwide Corp (OTIS, Financial) presents an intriguing case for investors. However, the critical question remains: Is the stock modestly overvalued? This article provides an in-depth analysis of the company's valuation, inviting readers to delve into the following financial insights.
Company Introduction
As the largest global elevator and escalator supplier by revenue, Otis Worldwide Corp (OTIS, Financial) holds an impressive 18% of the global market share. The company's business model, which begins with the installation of elevator units and extends to maintenance and eventual replacement, is akin to its closest competitors, Kone, Schindler, and TK Elevator. With a stock price of $90.73 and a GF Value of $77.8, Otis Worldwide (OTIS) appears to be modestly overvalued. This discrepancy between the stock price and the GF Value sets the stage for a more profound exploration of the company's value.
Understanding the GF Value
The GF Value is a unique measure of a stock's intrinsic value, derived from historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line provides an overview of the fair value at which the stock should ideally be traded. If the stock price significantly deviates from the GF Value Line, it indicates potential overvaluation or undervaluation, influencing future returns.
Based on this calculation, Otis Worldwide (OTIS, Financial) appears to be modestly overvalued with a market cap of $37.5 billion. This overvaluation suggests that the long-term return of its stock is likely to be lower than its business growth.
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Financial Strength
Companies with poor financial strength pose a high risk of permanent capital loss. To circumvent this risk, investors must thoroughly research a company's financial strength before purchasing shares. Otis Worldwide's cash-to-debt ratio of 0.16 is worse than 86.83% of companies in the Industrial Products industry, indicating fair financial strength.
Profitability and Growth
Profitable companies, especially those with consistent profitability over the long term, are less risky investments. Otis Worldwide has been profitable for six out of the past ten years, with a revenue of $13.6 billion and an EPS of $3.03 over the past twelve months. Its operating margin of 14.83% ranks better than 82.63% of companies in the Industrial Products industry, indicating fair profitability.
However, the company's 3-year average annual revenue growth rate of 2.2% and EBITDA growth rate of 4.5% rank worse than 65.12% and 59.65% of companies in the Industrial Products industry, respectively.
ROIC vs WACC
A comparison of a company's Return on Invested Capital (ROIC) and Weighted Average Cost of Capital (WACC) is another way to evaluate its profitability. Otis Worldwide's ROIC of 20.8 over the past 12 months is significantly higher than its WACC of 8.23, indicating that the company is creating value for shareholders.
Conclusion
In conclusion, Otis Worldwide (OTIS, Financial) stock appears to be modestly overvalued. While the company's financial condition and profitability are fair, its growth ranks worse than 59.65% of companies in the Industrial Products industry. For more detailed information about Otis Worldwide stock, check out its 30-Year Financials here.
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