As of July 18, 2023, KeyCorp (KEY, Financial) witnessed a 4.08% change in its stock price, taking it to $10.71 per share. This Ohio-based bank, with assets of over $170 billion, has a significant presence across 16 states, with its primary markets being Ohio and New York. KeyCorp primarily serves middle-market commercial clients through a hybrid community/corporate bank model. Despite a market capitalization of $10 billion and sales of $7.1 billion, the GF Value of KeyCorp stands at $18.88, indicating a possible value trap situation.
Understanding the GF Value
The GF Value is a unique measure of a stock's intrinsic worth, calculated based on historical trading multiples, an adjustment factor from GuruFocus based on past performance and growth, and estimates of future business performance. If the stock price significantly surpasses the GF Value Line, it is considered overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
KeyCorp's Financial Strength
Investing in companies with weak financial strength can result in permanent capital loss. Therefore, it's crucial to review a company’s financial strength before deciding to buy shares. KeyCorp's cash-to-debt ratio stands at 0.02, ranking it lower than 98.17% of companies in the Banks industry. This suggests a poor balance sheet, warranting caution from potential investors.
Profitability of KeyCorp
Investing in profitable companies, especially those demonstrating consistent profitability over the long term, poses less risk. KeyCorp has been profitable 10 times over the past 10 years. However, with an operating margin of 0%, it ranks lower than most companies in the Banks industry, indicating fair profitability.
Growth Prospects
Long-term stock performance is closely correlated with growth. Companies that grow faster create more value for shareholders, especially if that growth is profitable. KeyCorp's average annual revenue growth stands at 6.9%, ranking better than 53.53% of companies in the Banks industry. However, its 3-year average EBITDA growth is 0%, which ranks lower than most companies in the industry.
ROIC vs WACC
Another method of determining the profitability of a company is to compare its return on invested capital (ROIC) to the weighted average cost of capital (WACC). KeyCorp’s ROIC is 0, and its WACC is 5.5, indicating that the company is not creating value for shareholders.
Conclusion
In conclusion, the stock of KeyCorp (KEY, Financial) indicates a possible value trap. The company's financial condition is poor, and its profitability is fair. Its growth is lower than most companies in the Banks industry. To learn more about KeyCorp stock, you can check out its 30-Year Financials here.
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