With a daily gain of 3.26% and an Earnings Per Share (EPS) of 1.87, Trimble Inc (TRMB, Financial) is in the spotlight. But is this stock modestly undervalued? This article delves into a comprehensive valuation analysis of Trimble, offering valuable insights for investors. Read on to get a clear understanding of the company's financial position.
Company Introduction
Trimble Inc is a leading provider of location-based solutions, leveraging global positioning system (GPS), laser, optical, and inertial technologies. Its diverse product portfolio includes 3D laser scanning, flow and application control systems, monitoring systems, water management, and navigation infrastructure. The company serves various industries, including agriculture, architecture, civil engineering, survey, land administration, construction, and geospatial. Trimble operates in four primary segments: Buildings and Infrastructure, Geospatial, Resources and Utilities, and Transportation, deriving most of its revenues from the US and Europe, with the rest coming from the Asia Pacific and other markets.
As of August 03, 2023, the company's stock price stands at $55.51, with a market cap of $13.8 billion. The GF Value, GuruFocus' estimation of the fair value, is $69.46, suggesting that the stock might be modestly undervalued.
Understanding the GF Value
The GF Value is an exclusive GuruFocus measure that represents the intrinsic value of a stock. It is calculated based on historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line provides an overview of the ideal fair trading value of the stock.
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, Trimble (TRMB, Financial) is believed to be modestly undervalued, suggesting that the long-term return of its stock is likely to be higher than its business growth.
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Financial Strength
Before investing in a company, it's crucial to assess its financial strength. Companies with poor financial strength pose a higher risk of permanent loss. The cash-to-debt ratio and interest coverage offer valuable insights into a company's financial strength. Trimble's cash-to-debt ratio is 0.48, which is lower than 73.62% of companies in the Hardware industry. The overall financial strength of Trimble is rated 6 out of 10, indicating fair financial health.
Profitability and Growth
Investing in profitable companies carries less risk, especially those demonstrating consistent profitability over the long term. Trimble has been profitable for 10 years over the past decade. With revenues of $3.6 billion and Earnings Per Share (EPS) of $1.87 in the past 12 months, its operating margin of 14.48% is better than 85.53% of companies in the Hardware industry. GuruFocus ranks Trimble's profitability as strong.
Growth is a critical factor in a company's valuation. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. Trimble's 3-year average annual revenue growth rate is 4.4%, which ranks better than 51.27% of companies in the Hardware industry. However, its 3-year average EBITDA growth rate is 9%, ranking worse than 53.39% of companies in the same industry.
ROIC vs. WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can also evaluate its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the average rate a company is expected to pay to finance its assets. If ROIC exceeds WACC, the company is likely creating value for its shareholders. Trimble's ROIC in the past 12 months is 6, while its WACC is 13.58.
Conclusion
Overall, Trimble (TRMB, Financial) stock appears to be modestly undervalued. The company's financial condition is fair, and its profitability is strong. However, its growth ranks worse than 53.39% of companies in the Hardware industry. To learn more about Trimble stock, you can check out its 30-Year Financials here.
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