Bond offering and recent stock move
Casella Waste Systems (CWST) is back in focus after reporting revenue growth that exceeded analyst expectations and led its waste sector peers, which was a key driver behind the recent 6.4% stock move.
At the same time, the company completed a US$15 million fixed income offering of 4.300% bonds due December 1, 2044, sold at 100% of principal with attached guarantees and classified as revenue bonds under Rule 144A.
See our latest analysis for Casella Waste Systems.
The recent 6.4% move sits against a weaker backdrop, with the share price down 13.75% year to date and the 1 year total shareholder return declining 27.26%. As a result, recent momentum looks more like a short term rebound than a sustained trend.
If this kind of sector focused move has your attention, it can be helpful to compare Casella with other infrastructure related plays through a curated screener such as 33 power grid technology and infrastructure stocks
With the stock down over the past year, but trading about 32% below the average analyst price target and around 40% below an estimated intrinsic value, you have to ask: is this a buying opportunity, or is the market already pricing in future growth?
Preferred Price-to-Sales of 2.9x: Is it justified?
On a P/S of 2.9x, Casella Waste Systems looks expensive compared with both its Commercial Services peers and an estimated fair P/S level, even after the recent share price pullback.
The P/S ratio compares the company’s market value to its revenue and is often used for businesses where earnings are volatile or depressed. For Casella, this matters because net profit margins are currently 0.4% on $1,877.1m of revenue, and earnings have declined 44.6% per year over the past 5 years while also being affected by a one off loss of $27.4m.
At 2.9x sales, the stock is priced higher than the US Commercial Services industry average of 1x and above the peer average of 2.5x, suggesting investors are paying a premium for its 8% annual revenue growth and the expectation that earnings could grow significantly from a low base. However, the SWS fair P/S ratio is estimated at 1.6x, a level the market could move towards if sentiment cools or if growth and profitability do not track current expectations.
Explore the SWS fair ratio for Casella Waste Systems
Result: Price-to-Sales of 2.9x (OVERVALUED)
However, you also need to weigh risks, including thin 0.4% margins on US$1,877.1m of revenue, and share price returns that have trailed over 1 and 3 years.
Find out about the key risks to this Casella Waste Systems narrative.
Another view on value: DCF points the other way
While the 2.9x P/S ratio suggests Casella Waste Systems looks expensive against both peers and the fair ratio of 1.6x, the SWS DCF model tells a different story. On that approach, the stock at $85.09 trades about 40.3% below an estimated fair value of $142.63, which raises a simple question: which signal do you trust more?
Look into how the SWS DCF model arrives at its fair value.
Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Casella Waste Systems for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 47 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.
Next Steps
With sentiment clearly mixed, given both risks and potential rewards, it makes sense to move quickly and review the underlying data for yourself, starting with 3 key rewards and 4 important warning signs.
Looking for more investment ideas?
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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