Jack Henry & Associates Inc (JKHY, Financial) recently recorded a daily gain of 1.76% and a 3-month gain of 5.02%. Its Earnings Per Share (EPS) stands at 5.02. This article aims to answer the question: Is the stock modestly undervalued? By conducting a thorough valuation analysis, we will provide insights into the company's intrinsic value and financial health.
Company Introduction
Jack Henry & Associates Inc (JKHY, Financial) is a leading provider of core processing and complementary services, such as electronic funds transfer, payment processing, and loan processing for U.S. banks and credit unions. With a focus on small and midsize banks, Jack Henry serves almost 1,000 banks and over 700 credit unions. The company's stock price currently stands at $157.56, while its GF Value, an estimation of fair value, is at $201.6, suggesting that the stock might be modestly undervalued.
Understanding GF Value
The GF Value represents the current intrinsic value of a stock, derived from a unique method. The GF Value Line on our summary page provides an overview of the fair value at which the stock should ideally trade. This value is computed based on historical multiples, a GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of the business performance. 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.
Jack Henry & Associates (JKHY, Financial) appears to be modestly undervalued according to GuruFocus' valuation method. The GF Value estimates the stock's fair value based on three key factors: historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. At its current price of $157.56 per share, Jack Henry & Associates has a market cap of $11.50 billion, suggesting that the stock might be modestly undervalued.
Because Jack Henry & Associates is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth.
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Financial Strength
Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid this, an investor must review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are great ways to understand its financial strength. Jack Henry & Associates has a cash-to-debt ratio of 10000, which ranks better than 99.89% of companies in the Software industry. The overall financial strength of Jack Henry & Associates is 7 out of 10, indicating fair financial strength.
Profitability and Growth
Companies that have been consistently profitable over the long term offer less risk for investors. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Jack Henry & Associates has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $2.10 billion and Earnings Per Share (EPS) of $5.02. Its operating margin is 23.14%, which ranks better than 91.95% of companies in the Software industry. Overall, the profitability of Jack Henry & Associates is ranked 9 out of 10, indicating strong profitability.
Growth is probably the most important factor in the valuation of a company. A faster-growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Jack Henry & Associates is 9.6%, which ranks better than 54.08% of companies in the Software industry. The 3-year average EBITDA growth rate is 10.5%, which ranks better than 51.73% of companies in the Software industry.
ROIC vs WACC
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). 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. If the return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, Jack Henry & Associates's ROIC is 15.59 while its WACC came in at 8.91.
Conclusion
In conclusion, the stock of Jack Henry & Associates (JKHY, Financial) shows every sign of being modestly undervalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 51.73% of companies in the Software industry. To learn more about Jack Henry & Associates stock, you can check out its 30-Year Financials here.
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