- By GF Value
The stock of Hennessy Advisors (NAS:HNNA, 30-year Financials) shows every sign of being 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 $9.98 per share and the market cap of $73.5 million, Hennessy Advisors stock gives every indication of being significantly overvalued. GF Value for Hennessy Advisors is shown in the chart below.
Because Hennessy Advisors is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth.
Link: These companies may deliever higher future returns at reduced risk.
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. Hennessy Advisors has a cash-to-debt ratio of 45.29, which ranks in the middle range of the companies in Asset Management industry. Based on this, GuruFocus ranks Hennessy Advisors's financial strength as 8 out of 10, suggesting strong balance sheet. This is the debt and cash of Hennessy Advisors 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. Hennessy Advisors has been profitable 10 years over the past 10 years. During the past 12 months, the company had revenues of $30.9 million and earnings of $0.95 a share. Its operating margin of 32.32% better than 69% of the companies in Asset Management industry. Overall, GuruFocus ranks Hennessy Advisors's profitability as fair. This is the revenue and net income of Hennessy Advisors over the past years: