Shares of Willdan (WLDN) slid -0.3 % during today's afternoon session, which brings their 52 week performance to -39.8%. The Market Inference outlook on this stock is that it is overvalued at today's price of $18.68. But we also believe that a value analysis should be complemented by an overview of the company's poor growth indicators and positive market sentiment.
Willdan Group, Inc., together with its subsidiaries, provides professional, technical and consulting services primarily in the United States. The small-cap Industrials company has 1,560 full time employees and is based in Anaheim, United States.
WLDN Has a Higher P/E Ratio Than the Sector Average
Compared to the Industrials sector's average of 21.46, Willdan has a trailing twelve month price to earnings (P/E) ratio of -27.6 and an expected P/E ratio of 12.8. The P/E ratios are calculated by dividing the company's share price by its trailing 12 month of $-0.68 or forward earnings per share of $1.46.
Earnings represent the net profits left over after subtracting costs of goods sold, taxes, and operating costs from the company's recorded sales revenue. One way of looking at the P/E ratio is that it represents how much investors are willing to pay for every dollar's worth of the company's earnings. Since Willdan's P/E ratio is higher than its sector average of 21.46, we can deduce that the market is overvaluing the company's earnings.
WLDN Has an Average P/B Ratio
Traditionally, stock pickers used to focus primarily on finding issues that were trading significantly below their tangible asset value, to guarantee themselves a margin of safety. But such an approach would screen out many valuable securities because many profitable businesses -- especially those that heavily leverage information technology -- simply do not have many tangible assets compared to more capital intensive companies.
Therefore, modern value investors tend to focus less on absolute price to book value (P/B) ratios. Instead of singling out stocks with a P/B ratio of less than 1, they will compare the target company against its peer group. For Willdan, the P/B value is 1.4 while the average for the Industrials sector is 3.7.
WLDN's Weak Cash Flow Generation Is Troubling
The table below shows that Willdan is not generating enough cash. A well run company will generally have cash flows that reflect the strength of its underlying business, and in Willdan's case, free cash flow is growing at an average rate of 322.4% with a coefficient of variability of 139.8%. We can also see that cash flows from operations are evolving at a 112.8% rate, versus 22.0%:
|Date Reported||Cash Flow from Operations ($ MM)||Capital expenditures ($ MM)||Free Cash Flow ($ MM)||YoY Growth (%)|
Willdan Is Not a Profitable Business
If you are looking to make WLDN a long term investment, its weak margins may give you cause for concern. As you can see from the below, the company is generally losing money on each sale it makes. That being said, stock prices in the short term can be independent of a company's margins, and Willdan's management may be able to make the business profitable in the future.
Willdan's Gross Margins
|Date Reported||Revenue ($ MM)||Cost of Revenue ($ MM)||Gross Margins (%)||YoY Growth (%)|
Willdan's Operating Margins
|Date Reported||Total Revenue ($ MM)||Operating Expenses ($ MM)||Operating Margins (%)||YoY Growth (%)|
Willdan's cost of revenue is growing at a rate of -15.9% in contrast to 7.6% for operating expenses. Sales revenues, on the other hand, have experienced a -10.6% growth rate. As a result, the average gross margins growth is 12.4 and the average operating margins growth rate is -128.0, with coefficients of variability of 11.9% and 215.9% respectively.
Willdan Benefits From Positive Market Signals
The market sentiment regarding Willdan is overwhelmingly positive. The stock has an average rating of strong buy and target prices ranging from $35 to $16. WLDN is trading -31.45% away from its target price of $27.25. 3.8% of the company's shares are tied to short positions, and 87.5% of the shares are held by institutional investors.
|Forager Capital Management, LLC||1,556,470||2022-09-29||12%||$29,074,860|
|Handelsbanken Fonder AB||985,077||2022-09-29||7%||$18,401,238|
|Vanguard Group, Inc. (The)||580,147||2022-09-29||4%||$10,837,146|
|Frontier Capital Management Company LLC||483,626||2022-09-29||4%||$9,034,133|
|Rice, Hall, James & Associates||432,724||2022-12-30||3%||$8,083,284|
|Summit Creek Advisors, LLC||376,921||2022-09-29||3%||$7,040,884|
|Mirae Asset Global Investments Co., Ltd.||362,885||2022-09-29||3%||$6,778,691|
|Rock Point Advisors, LLC||325,597||2022-09-29||2%||$6,082,152|