Ferrari NV Stock Shows Every Sign Of Being Modestly Overvalued


The stock of Ferrari NV (NYSE:RACE, 30-year Financials) appears to be modestly 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 $204.26 per share and the market cap of $50.7 billion, Ferrari NV stock is believed to be modestly overvalued. GF Value for Ferrari NV is shown in the chart below.

Ferrari NV GF Value Chart

Because Ferrari NV is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth, which averaged 1.2% over the past three years and is estimated to grow 9.16% annually over the next three to five years.

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Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company’s financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. Ferrari NV has a cash-to-debt ratio of 0.50, which which ranks in the middle range of the companies in Vehicles & Parts industry. The overall financial strength of Ferrari NV is 6 out of 10, which indicates that the financial strength of Ferrari NV is fair. This is the debt and cash of Ferrari NV over the past years:

debt and cash

It poses less risk to invest in profitable companies, especially those that have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. Ferrari NV has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of $4 billion and earnings of $3.851 a share. Its operating margin is 21.10%, which ranks better than 97% of the companies in Vehicles & Parts industry. Overall, GuruFocus ranks the profitability of Ferrari NV at 7 out of 10, which indicates fair profitability. This is the revenue and net income of Ferrari NV over the past years:

Revnue and Net Income

Growth is probably one of the most important factors in the valuation of a company. GuruFocus’ research has found that growth is closely correlated with the long-term performance of a company’s stock. If a company’s business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company’s revenue and earnings are declining, the value of the company will decrease. Ferrari NV’s 3-year average revenue growth rate is in the middle range of the companies in Vehicles & Parts industry. Ferrari NV’s 3-year average EBITDA growth rate is 4%, which ranks in the middle range of the companies in Vehicles & Parts industry.

Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average cost of capital. 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. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Ferrari NV’s return on invested capital is 16.71, and its cost of capital is 3.29. The historical ROIC vs WACC comparison of Ferrari NV is shown below:

ROIC vs WACC

In conclusion, Ferrari NV (NYSE:RACE, 30-year Financials) stock shows every sign of being modestly overvalued. The company’s financial condition is fair and its profitability is fair. Its growth ranks in the middle range of the companies in Vehicles & Parts industry. To learn more about Ferrari NV stock, you can check out its 30-year Financials here.

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