- By GF Value
The stock of Schmitt Industries (NAS:SMIT, 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 $6.28 per share and the market cap of $23.9 million, Schmitt Industries stock gives every indication of being significantly overvalued. GF Value for Schmitt Industries is shown in the chart below.
Because Schmitt Industries 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.
It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. Schmitt Industries has a cash-to-debt ratio of 2.61, which is in the middle range of the companies in Hardware industry. The overall financial strength of Schmitt Industries is 4 out of 10, which indicates that the financial strength of Schmitt Industries is poor. This is the debt and cash of Schmitt Industries 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. Schmitt Industries has been profitable 3 years over the past 10 years. During the past 12 months, the company had revenues of $5.6 million and loss of $0.8 a share. Its operating margin of -87.66% in the bottom 10% of the companies in Hardware industry. Overall, GuruFocus ranks Schmitt Industries's profitability as poor. This is the revenue and net income of Schmitt Industries over the past years: