- By GF Value
The stock of Polymetal International PLC (OTCPK:AUCOY, 30-year Financials) gives every indication of being fairly valued, 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 $20.25 per share and the market cap of $9.5 billion, Polymetal International PLC stock shows every sign of being fairly valued. GF Value for Polymetal International PLC is shown in the chart below.
Because Polymetal International PLC is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which averaged 17.5% over the past three years and is estimated to grow 7.42% annually over the next three to five years.
Since investing in companies with low financial strength could result in permanent capital loss, investors must carefully review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. Polymetal International PLC has a cash-to-debt ratio of 0.22, which ranks worse than 86% of the companies in Metals & Mining industry. Based on this, GuruFocus ranks Polymetal International PLC's financial strength as 6 out of 10, suggesting fair balance sheet. This is the debt and cash of Polymetal International PLC over the past years:
It poses less risk to invest in profitable companies, especially those that have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. Polymetal International PLC has been profitable 8 over the past 10 years. Over the past twelve months, the company had a revenue of $2.9 billion and earnings of $2.27 a share. Its operating margin is 50.78%, which ranks better than 96% of the companies in Metals & Mining industry. Overall, GuruFocus ranks the profitability of Polymetal International PLC at 8 out of 10, which indicates strong profitability. This is the revenue and net income of Polymetal International PLC over the past years:
Growth is probably one of the most important factors 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. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. Polymetal International PLC's 3-year average revenue growth rate is better than 82% of the companies in Metals & Mining industry. Polymetal International PLC's 3-year average EBITDA growth rate is 32.2%, which ranks better than 77% of the companies in Metals & Mining industry.
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average cost of capital. 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. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Polymetal International PLC's return on invested capital is 29.15, and its cost of capital is -0.82. The historical ROIC vs WACC comparison of Polymetal International PLC is shown below:
In summary, Polymetal International PLC (OTCPK:AUCOY, 30-year Financials) stock appears to be fairly valued. The company's financial condition is fair and its profitability is strong. Its growth ranks better than 77% of the companies in Metals & Mining industry. To learn more about Polymetal International PLC stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.