- By GF Value
The stock of Energy Fuels (AMEX:UUUU, 30-year Financials) gives every indication of being 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 $5.97 per share and the market cap of $837.9 million, Energy Fuels stock is estimated to be significantly overvalued. GF Value for Energy Fuels is shown in the chart below.
Because Energy Fuels is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth.
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. Energy Fuels has a cash-to-debt ratio of 29.57, which ranks better than 75% of the companies in the industry of Other Energy Sources. Based on this, GuruFocus ranks Energy Fuels's financial strength as 7 out of 10, suggesting fair balance sheet. This is the debt and cash of Energy Fuels 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. Energy Fuels has been profitable 1 years over the past 10 years. During the past 12 months, the company had revenues of $1.7 million and loss of $0.25 a share. Its operating margin of -1399.42% in the bottom 10% of the companies in the industry of Other Energy Sources. Overall, GuruFocus ranks Energy Fuels's profitability as poor. This is the revenue and net income of Energy Fuels 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 stock performance of a company. A faster growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Energy Fuels is -68.2%, which ranks in the bottom 10% of the companies in the industry of Other Energy Sources. The 3-year average EBITDA growth rate is 12.6%, which ranks in the middle range of the companies in the industry of Other Energy Sources.
Another way to look at the profitability of a company is to compare its return on invested capital and the weighted 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. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, Energy Fuels's return on invested capital is -14.91, and its cost of capital is 10.93. The historical ROIC vs WACC comparison of Energy Fuels is shown below:
In short, Energy Fuels (AMEX:UUUU, 30-year Financials) stock is estimated to be significantly overvalued. The company's financial condition is fair and its profitability is poor. Its growth ranks in the middle range of the companies in the industry of Other Energy Sources. To learn more about Energy Fuels stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.