Cavco Industries, Inc. (NASDAQ: CVCO) investors have enjoyed seeing the stock price increase by 22.2% over the last month. As a small-cap stock, hardly covered by analysts, there is generally more of an opportunity for mispricing as there is less activity to push the stock closer to fair value. However, could the stock still be trading at a relatively cheap price? Let’s take a look at the company’s expected growth and valuation based on its most recent financial data to see if there is further upside moving forward.
Is Cavco Still Cheap?
According to my valuation models, the stock is currently overvalued by approximately -32.7%, trading at $216.55 compared to its intrinsic value of $145.83. Not the best news for investors looking to buy!
|Analysis||Model Fair Value||Upside (Downside)|
|10-yr DCF Revenue Exit||$127.81||-41.0%|
|5-yr DCF Revenue Exit||$150.40||-30.5%|
|Peer Revenue Multiples||$159.11||-26.5%|
|10-yr DCF EBITDA Exit||$134.73||-37.8%|
|5-yr DCF EBITDA Exit||$162.21||-25.1%|
|Peer EBITDA Multiples||$141.25||-34.8%|
|Peer P/E Multiples||$145.34||-32.9%|
Click on any of the analyses above to view the latest model with real-time data.
However, will there be another opportunity to buy low in the future? Given that Cavco’s stock is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) could mean the price can sink lower, giving investors another chance to buy in the future. This is based on its beta of 1.84, which is a good indicator for share price volatility.
What Does The Future Of Cavco Look Like?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company’s future expectations.
source: finbox.io data explorer
With net income expected to grow at an average rate of 15.7% over the next couple years, the future certainly appears bright for Cavco. It looks like higher cash flows are in the cards for shareholders, which should feed into a higher stock valuation.
How This Impacts You
Many investors separate stocks into value and growth categories based on quantitative metrics. However, one of the most famous investors in the world views this as foolish. In Warren Buffett’s 1992 letter to Berkshire Hathaway shareholders, Buffett touches upon a subject at odds with much of the investment industry:
“Most analysts feel they must choose between two approaches customarily thought to be in opposition: ‘value’ and ‘growth.’ Indeed, many investment professionals see any mixing of the two terms as a form of intellectual cross-dressing. We view that as fuzzy thinking… In our opinion, the two approaches are joined at the hip: Growth is always a component in the calculation of value.”
While investors tend to categorize stocks into value and growth, some of the most successful investors view growth as simply one component of a company’s value.
Cavco has positioned itself so that double-digit growth appears to be a reasonable assumption for the foreseeable future. However, this growth does not look highly attractive at current trading levels. As such, investors may want to hold off on buying or adding to their CVCO position for the time being.
But before making an investment decision, I recommend you continue to research Cavco to get a more comprehensive view of the company by looking at:
Risk Metrics: how much interest coverage does Cavco have? This is a ratio used to assess a firm’s ability to pay interest expenses based on operating profits (EBIT). View the company’s interest coverage here.
Valuation Metrics: what is Cavco’s short ratio and how does it compare to its publicly traded peers? It represents the percentage of total shares outstanding that is being shorted. View the short ratio here.
Efficiency Metrics: fixed asset turnover is calculated by dividing revenue by average fixed assets. View Cavco’s fixed asset turnover here.
As of this writing, I did not hold a position in any of the aforementioned securities and this is not a buy or sell recommendation on any security mentioned.