Caledonia Mining PLC Stock Is Estimated To Be Significantly Overvalued
- By GF Value
The stock of Caledonia Mining PLC (AMEX:CMCL, 30-year Financials) appears to be significantly overvalued, 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 $14.28 per share and the market cap of $173.1 million, Caledonia Mining PLC stock appears to be significantly overvalued. GF Value for Caledonia Mining PLC is shown in the chart below.
Because Caledonia Mining PLC is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 9.1% over the past five years.
Link: These companies may deliever higher future returns at reduced risk.
It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. Caledonia Mining PLC has a cash-to-debt ratio of 29.51, which is in the middle range of the companies in Metals & Mining industry. The overall financial strength of Caledonia Mining PLC is 9 out of 10, which indicates that the financial strength of Caledonia Mining PLC is strong. This is the debt and cash of Caledonia Mining PLC 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. Caledonia Mining PLC has been profitable 9 years over the past 10 years. During the past 12 months, the company had revenues of $100 million and earnings of $1.749 a share. Its operating margin of 41.65% better than 94% of the companies in Metals & Mining industry. Overall, GuruFocus ranks Caledonia Mining PLC's profitability as strong. This is the revenue and net income of Caledonia Mining 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. Caledonia Mining PLC's 3-year average revenue growth rate is better than 70% of the companies in Metals & Mining industry. Caledonia Mining PLC's 3-year average EBITDA growth rate is 19%, which ranks in the middle range 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, Caledonia Mining PLC's return on invested capital is 19.10, and its cost of capital is 7.26. The historical ROIC vs WACC comparison of Caledonia Mining PLC is shown below:
In short, Caledonia Mining PLC (AMEX:CMCL, 30-year Financials) stock is believed to be significantly overvalued. The company's financial condition is strong and its profitability is strong. Its growth ranks in the middle range of the companies in Metals & Mining industry. To learn more about Caledonia Mining PLC stock, you can check out its 30-year Financials here.
To find out the high quality companies that may deliever above average returns, please check out GuruFocus High Quality Low Capex Screener.
This article first appeared on GuruFocus.
