- By GF Value
The stock of Great Panther Mining (AMEX:GPL, 30-year Financials) is believed to be possible value trap, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $0.7921 per share and the market cap of $280.2 million, Great Panther Mining stock appears to be possible value trap. GF Value for Great Panther Mining is shown in the chart below.
The reason we think that Great Panther Mining stock might be a value trap is because Great Panther Mining has an Altman Z-score of 1.34, which indicates that the financial condition of the company is in the distressed zone and implies a higher risk of bankruptcy. An Altman Z-score of above 2.99 would be better, indicating safe financial conditions. To learn more about how the Z-score measures the financial risk of the company, please go here.
Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Thus, it is important to carefully review the financial strength of a company before deciding whether to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company. Great Panther Mining has a cash-to-debt ratio of 1.42, which is worse than 68% of the companies in Metals & Mining industry. GuruFocus ranks the overall financial strength of Great Panther Mining at 6 out of 10, which indicates that the financial strength of Great Panther Mining is fair. This is the debt and cash of Great Panther Mining over the past years:
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Great Panther Mining has been profitable 4 years over the past 10 years. During the past 12 months, the company had revenues of $260.8 million and loss of $0.009 a share. Its operating margin of 21.55% better than 78% of the companies in Metals & Mining industry. Overall, GuruFocus ranks Great Panther Mining's profitability as poor. This is the revenue and net income of Great Panther Mining over the past years:
Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term performance of a company's stock. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Great Panther Mining is 26.9%, which ranks better than 89% of the companies in Metals & Mining industry. The 3-year average EBITDA growth rate is 55.6%, which ranks better than 93% of the companies in Metals & Mining industry.
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted 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 ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Great Panther Mining's ROIC was -35.63, while its WACC came in at 12.51. The historical ROIC vs WACC comparison of Great Panther Mining is shown below:
Overall, the stock of Great Panther Mining (AMEX:GPL, 30-year Financials) is estimated to be possible value trap. The company's financial condition is fair and its profitability is poor. Its growth ranks better than 93% of the companies in Metals & Mining industry. To learn more about Great Panther Mining stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.