With a daily gain of 3.14% and a 3-month gain of 10.51%, Lowe's Companies Inc (LOW, Financial) has been on a steady incline. Its Earnings Per Share (EPS) stands at 10.27, raising the question: is the stock fairly valued? This article delves into the valuation analysis of Lowe's (LOW), providing an in-depth look at its financial performance and intrinsic value.
Introducing Lowe's Companies Inc (LOW, Financial)
Lowe's is the second-largest home improvement retailer worldwide, operating over 1,700 stores in the United States. The company offers products and services for home decorating, maintenance, repair, and remodeling, with maintenance and repair accounting for two-thirds of products sold. Lowe's targets retail do-it-yourself and do-it-for-me customers as well as commercial and professional business clients. With a market cap of $131.50 billion, Lowe's captures a low-double-digit share of the domestic home improvement market.
The following chart provides an income breakdown of Lowe's:
Understanding the GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It is calculated based on historical multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line on our summary page provides an overview of the fair value at which the stock should ideally be traded.
Lowe's (LOW, Financial) stock is currently estimated to be fairly valued according to the GF Value calculation. At its current price of $224.43 per share, the stock aligns closely with its intrinsic value. Therefore, the long-term return of Lowe's stock is likely to be close to the rate of its business growth.
Financial Strength of Lowe's
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. Lowe's has a cash-to-debt ratio of 0.07, ranking worse than 86.54% of companies in the Retail - Cyclical industry. Based on this, GuruFocus ranks Lowe's financial strength as 5 out of 10, suggesting a fair balance sheet.
Below is a chart showing the debt and cash of Lowe's over the past years:
Profitability and Growth of Lowe's
Investing in profitable companies carries less risk, especially if the companies demonstrate consistent profitability over the long term. Lowe's has been profitable for 10 years over the past 10 years. The company had revenues of $95.70 billion and Earnings Per Share (EPS) of $10.27 in the past 12 months. Its operating margin of 10.6% is better than 79.6% of companies in the Retail - Cyclical industry, indicating strong profitability.
Growth is an essential 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. Lowe's 3-year average annual revenue growth rate is 18.4%, which ranks better than 79.67% of companies in the Retail - Cyclical industry. Its 3-year average EBITDA growth rate is 24.7%, ranking better than 74.94% of companies in the same industry.
Another key profitability measure is the comparison of a company's return on invested capital (ROIC) to its weighted cost of capital (WACC). If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Lowe's ROIC was 23.16, while its WACC was 7.71.
Below is the historical ROIC vs WACC comparison of Lowe's:
Conclusion
In conclusion, the stock of Lowe's Companies Inc (LOW, Financial) is estimated to be fairly valued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 74.94% of companies in the Retail - Cyclical industry. To learn more about Lowe's stock, you can check out its 30-Year Financials here.
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