On August 16, 2023, Jack Henry & Associates Inc (JKHY, Financial) experienced a day's loss of -7.49%, despite a 3-month gain of 4.99%. The company's Earnings Per Share (EPS) stands at 4.78. But, is the stock modestly undervalued? This article aims to answer this question by conducting a comprehensive valuation analysis of JKHY. Read on to gain detailed insights into the company's financial standing and growth prospects.
Company Introduction
Established as a leading provider of core processing and complementary services, Jack Henry & Associates Inc (JKHY, Financial) is renowned for its electronic funds transfer, payment processing, and loan processing services. The company primarily caters to U.S. banks and credit unions, focusing on small and midsize banks. JKHY serves almost 1,000 banks and over 700 credit unions. With a current stock price of $155.7, the company's GF Value stands at $201.32, indicating that the stock might be modestly undervalued.
Understanding the GF Value
The GF Value is a unique measure of a stock's intrinsic value, calculated based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line on our summary page provides an overview of the fair value that the stock should ideally be traded at. If the stock price is significantly above the GF Value Line, it is 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.
Currently, Jack Henry & Associates (JKHY, Financial) is estimated to be modestly undervalued based on the GF Value calculation. With a market cap of $11.30 billion and a stock price of $155.7 per share, the company's future returns are likely to be higher than its business growth, given its undervalued status.
Financial Strength
Investing in companies with low financial strength can result in permanent capital loss. Therefore, it's crucial to review a company's financial strength before deciding to buy shares. Jack Henry & Associates has a cash-to-debt ratio of 0.07, which ranks worse than 94.32% of companies in the Software industry. Based on this, GuruFocus ranks JKHY's financial strength as 7 out of 10, suggesting a fair balance sheet.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is less risky. Jack Henry & Associates has been profitable 10 years over the past 10 years. With a revenue of $2 billion and Earnings Per Share (EPS) of $4.78 in the past twelve months, the company's operating margin is 22.72%, ranking better than 91.79% of companies in the Software industry. JKHY's profitability is ranked 9 out of 10, indicating strong profitability.
Jack Henry & Associates's 3-year average revenue growth rate is better than 54.15% of companies in the Software industry. With a 3-year average EBITDA growth rate of 10.5%, JKHY ranks better than 51.71% of companies in the Software industry.
ROIC vs WACC
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) and the weighted average cost of capital (WACC). JKHY's ROIC stands at 15.55, and its WACC is 8.87 for the past 12 months, indicating a healthy profitability ratio.
Conclusion
In conclusion, the stock of Jack Henry & Associates (JKHY, Financial) is estimated to be modestly undervalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 51.71% of companies in the Software industry. To learn more about Jack Henry & Associates stock, you can check out its 30-Year Financials here.
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