McGraw Hill Stock To $11?
McGraw Hill (MH) stock has fallen 11% during the past day, and is currently trading at $14.83. Our multi-factor assessment suggests that it may be time to sell MH stock. We have, overall, a pessimistic view of the stock, and a price of $11 may not be out of reach. We believe there are several things to fear in MH stock, given its overall Weak operating performance and financial condition. Hence, despite its Low valuation, this makes the stock look Risky.
Below is our assessment:
| CONCLUSION | |
|---|---|
| What you pay: | |
| Valuation | Low |
| What you get: | |
| Growth | Inconsistent |
| Profitability | Weak |
| Financial Stability | Weak |
| Operating Performance | Weak |
| Stock Opinion | Risky |
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Let’s get into details of each of the assessed factors but before that, for quick background: With $2.7 Bil in market cap, McGraw Hill provides global information solutions for education, spanning K-12, higher education, and professional learning.
[1] Valuation Looks Low
| MH | S&P 500 | |
|---|---|---|
| Price-to-Sales Ratio | 1.3 | 3.3 |
| Price-to-Earnings Ratio | -26.7 | 23.8 |
| Price-to-Free Cash Flow Ratio | 12.5 | 21.2 |
This table highlights how MH is valued vs broader market.
[2] Growth Is Inconsistent
- McGraw Hill has seen its top line grow at an average rate of 4.3% over the last 3 years
- Its revenues have grown 3.2% from $2.0 Bil to $2.1 Bil in the last 12 months
- Also, its quarterly revenues declined -2.8% to $669 Mil in the most recent quarter from $689 Mil a year ago.
| MH | S&P 500 | |
|---|---|---|
| 3-Year Average | 4.3% | 5.6% |
| Latest Twelve Months* | 3.2% | 6.2% |
| Most Recent Quarter (YoY)* | -2.8% | 7.3% |
This table highlights how MH is growing vs broader market.
[3] Profitability Appears Weak
- MH last 12 month operating income was $305 Mil representing operating margin of 14.5%
- With cash flow margin of 19.2%, it generated nearly $402 Mil in operating cash flow over this period
- For the same period, MH generated nearly $-104 Mil in net income, suggesting net margin of about -5.0%
| MH | S&P 500 | |
|---|---|---|
| Current Operating Margin | 14.5% | 18.8% |
| Current OCF Margin | 19.2% | 20.5% |
| Current Net Income Margin | -5.0% | 13.1% |
This table highlights how MH profitability vs broader market.
[4] Financial Stability Looks Weak
- MH Debt was $2.9 Bil at the end of the most recent quarter, while its current Market Cap is $2.7 Bil. This implies Debt-to-Equity Ratio of 104.0%
- MH Cash (including cash equivalents) makes up $463 Mil of $6.0 Bil in total Assets. This yields a Cash-to-Assets Ratio of 7.7%
| MH | S&P 500 | |
|---|---|---|
| Current Debt-to-Equity Ratio | 104.0% | 20.2% |
| Current Cash-to-Assets Ratio | 7.7% | 7.2% |
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