Natures Sunshine Products Stock Is Estimated To Be Significantly Overvalued
- By GF Value
The stock of Natures Sunshine Products (NAS:NATR, 30-year Financials) gives every indication 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 $19.81 per share and the market cap of $392.2 million, Natures Sunshine Products stock gives every indication of being significantly overvalued. GF Value for Natures Sunshine Products is shown in the chart below.
Because Natures Sunshine Products is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 2.1% over the past five years.
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. Natures Sunshine Products has a cash-to-debt ratio of 3.50, which ranks better than 76% of the companies in the industry of Consumer Packaged Goods. Based on this, GuruFocus ranks Natures Sunshine Products's financial strength as 7 out of 10, suggesting fair balance sheet. This is the debt and cash of Natures Sunshine Products 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. Natures Sunshine Products has been profitable 8 years over the past 10 years. During the past 12 months, the company had revenues of $385.2 million and earnings of $1.07 a share. Its operating margin of 5.58% in the middle range of the companies in the industry of Consumer Packaged Goods. Overall, GuruFocus ranks Natures Sunshine Products's profitability as fair. This is the revenue and net income of Natures Sunshine Products over the past years:
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Natures Sunshine Products is 2.1%, which ranks in the middle range of the companies in the industry of Consumer Packaged Goods. The 3-year average EBITDA growth is 37.9%, which ranks better than 90% of the companies in the industry of Consumer Packaged Goods.
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, Natures Sunshine Products's ROIC is 19.57 while its WACC came in at 5.49. The historical ROIC vs WACC comparison of Natures Sunshine Products is shown below:
In closing, The stock of Natures Sunshine Products (NAS:NATR, 30-year Financials) shows every sign of being significantly overvalued. The company's financial condition is fair and its profitability is fair. Its growth ranks better than 90% of the companies in the industry of Consumer Packaged Goods. To learn more about Natures Sunshine Products stock, you can check out its 30-year Financials here.
To find out the high quality companies that may deliever above average returns, please check out GuruFocus High Quality Low Capex Screener.
This article first appeared on GuruFocus.