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Fomento Economico Mexicano SAB de CV Stock Is Estimated To Be Fairly Valued

·4 min read

- By GF Value

The stock of Fomento Economico Mexicano SAB de CV (NYSE:FMX, 30-year Financials) shows every sign 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 $83.95 per share and the market cap of $30 billion, Fomento Economico Mexicano SAB de CV stock is estimated to be fairly valued. GF Value for Fomento Economico Mexicano SAB de CV is shown in the chart below.


Fomento Economico Mexicano SAB de CV Stock Is Estimated To Be Fairly Valued
Fomento Economico Mexicano SAB de CV Stock Is Estimated To Be Fairly Valued

Because Fomento Economico Mexicano SAB de CV is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which averaged 3.9% over the past three years and is estimated to grow 5.62% annually over the next three to five years.

Link: These companies may deliever higher future returns at reduced risk.

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. Fomento Economico Mexicano SAB de CV has a cash-to-debt ratio of 0.47, which is in the middle range of the companies in the industry of Beverages - Alcoholic. GuruFocus ranks the overall financial strength of Fomento Economico Mexicano SAB de CV at 4 out of 10, which indicates that the financial strength of Fomento Economico Mexicano SAB de CV is poor. This is the debt and cash of Fomento Economico Mexicano SAB de CV over the past years:

Fomento Economico Mexicano SAB de CV Stock Is Estimated To Be Fairly Valued
Fomento Economico Mexicano SAB de CV Stock Is Estimated To Be Fairly Valued

Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Fomento Economico Mexicano SAB de CV has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of $23.5 billion and loss of $0.608 a share. Its operating margin is 8.74%, which ranks in the middle range of the companies in the industry of Beverages - Alcoholic. Overall, the profitability of Fomento Economico Mexicano SAB de CV is ranked 7 out of 10, which indicates fair profitability. This is the revenue and net income of Fomento Economico Mexicano SAB de CV over the past years:

Fomento Economico Mexicano SAB de CV Stock Is Estimated To Be Fairly Valued
Fomento Economico Mexicano SAB de CV Stock Is Estimated To Be Fairly Valued

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 Fomento Economico Mexicano SAB de CV is 3.9%, which ranks in the middle range of the companies in the industry of Beverages - Alcoholic. The 3-year average EBITDA growth rate is 1.3%, which ranks in the middle range of the companies in the industry of Beverages - Alcoholic.

One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average 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 return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, Fomento Economico Mexicano SAB de CV's ROIC is 0.60 while its WACC came in at 9.92. The historical ROIC vs WACC comparison of Fomento Economico Mexicano SAB de CV is shown below:

Fomento Economico Mexicano SAB de CV Stock Is Estimated To Be Fairly Valued
Fomento Economico Mexicano SAB de CV Stock Is Estimated To Be Fairly Valued

Overall, the stock of Fomento Economico Mexicano SAB de CV (NYSE:FMX, 30-year Financials) is estimated to be fairly valued. The company's financial condition is poor and its profitability is fair. Its growth ranks in the middle range of the companies in the industry of Beverages - Alcoholic. To learn more about Fomento Economico Mexicano SAB de CV stock, you can check out its 30-year Financials here.

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This article first appeared on GuruFocus.