Unveiling Eldorado Gold (EGO)'s Value: Is It Really Priced Right? A Comprehensive Guide
The stock of Eldorado Gold Corp (NYSE:EGO) has seen a daily loss of -4.77% and a 3-month loss of -15.99%. Despite these figures, the Earnings Per Share (EPS) stands at 0.06, raising the question: Is the stock modestly undervalued? This article offers a comprehensive valuation analysis of Eldorado Gold (NYSE:EGO), providing key insights into its financial health and future prospects.
Company Overview
Eldorado Gold Corp is a leading gold and base metals producer with mining, development, and exploration operations in Turkey, Canada, Greece, and Romania. The company boasts a portfolio of high-quality assets and has established long-term partnerships with local communities. With a current stock price of $8.49 per share and a market cap of $1.70 billion, Eldorado Gold's intrinsic value, as estimated by the GF Value, stands at $9.61. This suggests that the stock is modestly undervalued. To better understand the company's value, let's delve into its financial performance and prospects.
Understanding GF Value
The GF Value is a proprietary measure that estimates a stock's intrinsic value based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line provides an overview of the stock's fair trading value. 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.
Eldorado Gold (NYSE:EGO) is estimated to be modestly undervalued according to the GF Value calculation. This suggests that the long-term return of its stock is likely to be higher than its business growth.
Link: These companies may deliver higher future returns at reduced risk.
Financial Strength
Investing in companies with poor financial strength carries a higher risk of permanent loss of capital. Therefore, it is crucial to thoroughly review a company's financial strength before deciding to buy its stock. Eldorado Gold's cash-to-debt ratio stands at 0.81, ranking it lower than 74.2% of 2628 companies in the Metals & Mining industry. Its overall financial strength is ranked 6 out of 10 by GuruFocus, indicating that Eldorado Gold's financial strength is fair.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is generally less risky. Eldorado Gold has been profitable 3 times over the past 10 years. Over the past twelve months, the company had a revenue of $925.10 million and Earnings Per Share (EPS) of $0.06. Its operating margin is 9.8%, ranking better than 70.64% of 855 companies in the Metals & Mining industry. Overall, the profitability of Eldorado Gold is ranked 5 out of 10, indicating fair profitability.
One of the most important factors in the valuation of a company is growth. The average annual revenue growth of Eldorado Gold is 8.7%, ranking it lower than 57.6% of 599 companies in the Metals & Mining industry. The 3-year average EBITDA growth is -5.6%, ranking it lower than 65.98% of 1846 companies in the Metals & Mining industry.
ROIC vs WACC
Evaluating a company's profitability can also be done 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 ROIC exceeds the WACC, the company is likely creating value for its shareholders. During the past 12 months, Eldorado Gold's ROIC was 1.92 while its WACC came in at 6.06.
Conclusion
Overall, the stock of Eldorado Gold (NYSE:EGO) is estimated to be modestly undervalued. The company's financial condition is fair, and its profitability is fair. Its growth ranks lower than 65.98% of 1846 companies in the Metals & Mining industry. To learn more about Eldorado Gold stock, you can check out its 30-Year Financials here.
To find out the high-quality companies that may deliver above-average returns, please check out GuruFocus High Quality Low Capex Screener.
This article first appeared on GuruFocus.
