REX American Resources Corp (NYSE:REX) has been making notable strides in the stock market, with a daily gain of 7.97% and a 3-month gain of 10.05%. The company's Earnings Per Share (EPS) stands at 1.58. But the question on investors' minds is, "Is the stock modestly undervalued?" This article aims to answer that question through a comprehensive valuation analysis. So, let's dive in.
REX American Resources Corp operates as a holding company, with its primary investments in alternative energy and ethanol production entities. Its operating segments include Ethanol and By-Products, producing dried distillers grains, modified distillers grains, and non-food grade corn oil. The company's current stock price is $39.01, with a market cap of $678.40 million. When compared to the GF Value of $44.36, it appears that REX American Resources may be modestly undervalued.
Understanding the GF Value
The GF Value is an exclusive measure of a stock's intrinsic value, computed based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line on our summary page provides an overview of the fair value at which the stock should ideally be traded. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
When we apply this analysis to REX American Resources, it appears to be modestly undervalued. This suggests that the long-term return of its stock is likely to be higher than its business growth.
Before investing in a company, it's crucial to check its financial strength. Companies with poor financial strength pose a higher risk of permanent loss. REX American Resources has a cash-to-debt ratio of 19.21, which is better than 84.32% of 1441 companies in the Chemicals industry. This indicates that the financial strength of REX American Resources is strong, with a rating of 9 out of 10.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is less risky. REX American Resources has been profitable 10 over the past 10 years. However, its operating margin is 2.69%, which ranks worse than 68.55% of 1469 companies in the Chemicals industry. Overall, the profitability of REX American Resources is ranked 8 out of 10, indicating strong profitability.
Growth is a critical factor in the valuation of a company. REX American Resources's 3-year average revenue growth rate is better than 88.21% of 1416 companies in the Chemicals industry. Its 3-year average EBITDA growth rate is 24.4%, which ranks better than 72.02% of 1308 companies in the Chemicals industry.
ROIC vs WACC
Another way to determine a company's profitability is to compare its return on invested capital (ROIC) to the weighted average cost of capital (WACC). The ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. The 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, REX American Resources's ROIC is 7.04, and its WACC is 6.51.
In summary, REX American Resources appears to be modestly undervalued. The company's financial condition is strong, and its profitability is robust. Its growth ranks better than 72.02% of 1308 companies in the Chemicals industry. To learn more about REX American Resources stock, you can check out its 30-Year Financials here.
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This article first appeared on GuruFocus.