Vertiv Holdings Co (VRT, Financial) has experienced a daily loss of -3.02% and a three-month gain of 90.48%. With an Earnings Per Share (EPS) of 0.47, one might wonder if the stock is significantly overvalued. This article aims to answer that question by providing a comprehensive valuation analysis. Read on for an insightful exploration of Vertiv Holdings Co's financial standing and growth prospects.
Company Overview
Vertiv Holdings Co is a leading provider of hardware, software, analytics, and services, ensuring the optimal performance of its customers' vital applications. The company caters to the needs of data centers, communication networks, and commercial and industrial facilities with a robust portfolio of power, cooling, and IT infrastructure solutions. Vertiv Holdings Co's business operations are spread across three segments: the Americas, Asia Pacific, and Europe, Middle East & Africa.
The company's current stock price stands at $38.02, while its fair value, or GF Value, is estimated at $25.08. This discrepancy paves the way for an in-depth analysis of the company's intrinsic value.
Understanding GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It is 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.
According to our valuation method, Vertiv Holdings Co's stock appears to be significantly overvalued. If the share price is significantly above the GF Value Line, the stock may be overvalued and may yield poor future returns. Conversely, if the share price is significantly below the GF Value Line, the stock may be undervalued and may yield higher future returns.
Given that Vertiv Holdings Co is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth.
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Financial Strength
Investing in companies with poor financial strength carries a higher risk of permanent capital loss. Therefore, it's crucial to carefully review a company's financial strength before deciding to buy its stock. A good starting point is to look at the cash-to-debt ratio and interest coverage. Vertiv Holdings Co's cash-to-debt ratio stands at 0.09, which is lower than 92.4% of the companies in the Industrial Products industry. GuruFocus ranks Vertiv Holdings Co's overall financial strength at 5 out of 10, indicating fair financial strength.
Profitability and Growth
Companies that have been consistently profitable over the long term offer less risk for investors. Higher profit margins usually indicate a better investment compared to a company with lower profit margins. Vertiv Holdings Co has been profitable 4 times over the past 10 years. Over the past twelve months, the company had a revenue of $6.40 billion and an Earnings Per Share (EPS) of $0.47. Its operating margin is 9.58%, which ranks better than 64.69% of the companies in the Industrial Products industry. Overall, the profitability of Vertiv Holdings Co is ranked 4 out of 10, indicating poor profitability.
Growth is a crucial factor in the valuation of a company. Research by GuruFocus 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 Vertiv Holdings Co is 0%, which ranks worse than 0% of the companies in the Industrial Products industry. The 3-year average EBITDA growth rate is 0%, which ranks worse than 0% of the companies in the Industrial Products industry.
ROIC vs. WACC
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, Vertiv Holdings Co's ROIC was 6.28, while its WACC came in at 12.45.
Conclusion
Overall, Vertiv Holdings Co (VRT, Financial)'s stock appears to be significantly overvalued. The company's financial condition is fair, but its profitability is poor. Its growth ranks worse than 0% of the companies in the Industrial Products industry. To learn more about Vertiv Holdings Co's stock, you can check out its 30-Year Financials here.
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