With a notable daily gain of 9.3% and a 3-month gain of 25.44%, Hollysys Automation Technologies Ltd (HOLI, Financial) showcases a robust performance in the market. The company's Earnings Per Share (EPS) stands at 1.89, sparking interest among investors. However, the critical question remains: is HOLI modestly overvalued? This article delves into a valuation analysis to address this query, inviting readers to explore our findings.
Company Overview
Hollysys Automation Technologies Ltd is a leader in China's automation and control technologies sector, driving innovation across three key segments: Industrial Automation, Rail Transportation, and Mechanical & Electrical Solutions. With a strong presence in the Chinese market, Hollysys Automation Technologies has cultivated a reputation for excellence. The stock currently trades at $24.81, boasting a market cap of $1.50 billion, but how does this compare to its intrinsic value? We'll weigh the stock price against the GF Value to determine if it truly reflects the company's worth.
Understanding the GF Value
The GF Value is a proprietary metric that represents a stock's intrinsic value, calculated through a unique methodology. It takes into account historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and projected future business performance. The GF Value Line serves as a benchmark for the stock's fair trading value. When a stock's price significantly exceeds this line, it's considered overvalued, suggesting a lower future return. Conversely, a price well below indicates a potentially higher return. Currently, Hollysys Automation Technologies (HOLI, Financial) appears modestly overvalued, which may signal lower long-term returns despite its business growth.
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Financial Strength Assessment
Investing in companies with robust financial strength mitigates the risk of capital loss. A thorough examination of Hollysys Automation Technologies' financials, including its cash-to-debt ratio and interest coverage, is crucial. With a cash-to-debt ratio of 10.71, Hollysys outperforms 77.7% of its industry peers. The company's financial strength is rated a solid 9 out of 10 by GuruFocus, underscoring its resilience.
Profitability and Growth Prospects
A profitable company, particularly one with a track record of consistent earnings, is generally a safer investment. Hollysys Automation Technologies has maintained profitability for the past decade, with a revenue of $807.20 million and an Earnings Per Share (EPS) of $1.89 over the last twelve months. Its operating margin of 13.72% ranks in the top 79% of the industry. The company's profitability rating is a commendable 7 out of 10.
Regarding growth, Hollysys Automation Technologies' 3-year average annual revenue growth of 14.7% surpasses 71.25% of its industry counterparts. However, its 3-year average EBITDA growth rate of 5.8% does not fare as well, ranking below 57.47% of the industry.
ROIC vs. WACC Analysis
The comparison between a company's Return on Invested Capital (ROIC) and its Weighted Average Cost of Capital (WACC) is a vital measure of profitability. Hollysys Automation Technologies' ROIC of 12.82 is nearly double its WACC of 6.53, indicating that the company effectively generates cash flow relative to its invested capital.
Concluding Thoughts
In summary, Hollysys Automation Technologies (HOLI, Financial) seems modestly overvalued. The company's financial condition is robust, and its profitability is satisfactory. However, its growth is less impressive, lagging behind over half of its industry peers. For a comprehensive understanding of Hollysys Automation Technologies' financials, interested investors can explore its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
