Harvey Norman Holdings Stock Shows Every Sign Of Being Significantly Overvalued
- By GF Value
The stock of Harvey Norman Holdings (ASX:HVN, 30-year Financials) is believed to be significantly 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 AUD 5.73 per share and the market cap of AUD 7.4 billion, Harvey Norman Holdings stock appears to be significantly overvalued. GF Value for Harvey Norman Holdings is shown in the chart below.
Because Harvey Norman Holdings is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 3.2% over the past five years.
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Since investing in companies with low financial strength could result in permanent capital loss, investors must carefully review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. Harvey Norman Holdings has a cash-to-debt ratio of 0.22, which ranks worse than 74% of the companies in the industry of Retail - Cyclical. Based on this, GuruFocus ranks Harvey Norman Holdings's financial strength as 6 out of 10, suggesting fair balance sheet. This is the debt and cash of Harvey Norman Holdings over the past years:
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Harvey Norman Holdings has been profitable 10 years over the past 10 years. During the past 12 months, the company had revenues of AUD 3.9 billion and earnings of AUD 0.585 a share. Its operating margin of 22.67% better than 96% of the companies in the industry of Retail - Cyclical. Overall, GuruFocus ranks Harvey Norman Holdings's profitability as fair. This is the revenue and net income of Harvey Norman Holdings over the past years: