Unveiling Warrior Met Coal (HCC)'s Value: Is It Really Priced Right? A Comprehensive Guide
Warrior Met Coal Inc (NYSE:HCC) recently experienced a daily loss of -5.29%, although it boasts a three-month gain of 26.6%. With an Earnings Per Share (EPS) of 8.92, the question arises: Is the stock modestly overvalued? This article aims to provide a comprehensive analysis of Warrior Met Coal's valuation, offering valuable insights for potential investors.
Understanding Warrior Met Coal
Warrior Met Coal Inc is a U.S. based company specializing in the production and export of met coal. It operates two underground mines in Alabama and sells to steel manufacturers in Europe, Asia, and South America. Its mining operations consist of two underground met coal mines in Southern Appalachia's coal seam and other surface met and thermal coal mines. With a current stock price of $48.38 and a GF Value of $37.55, the stock appears to be modestly overvalued. Let's delve deeper into the company's financials to understand its true intrinsic value.
The GF Value of Warrior Met Coal
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It is calculated based on historical trading multiples, a GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of business performance. The GF Value Line provides an overview of the fair value at which the stock should ideally be traded.
Based on GuruFocus' valuation method, the stock of Warrior Met Coal (NYSE:HCC) is estimated to be modestly overvalued. The GF Value estimates the stock's fair value based on historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. If the share price is significantly above the GF Value Line, the stock may be overvalued and have poor future returns. Conversely, if the share price is significantly below the GF Value Line, the stock may be undervalued and have higher future returns. Given Warrior Met Coal's current price of $48.38 per share, the stock appears to be modestly overvalued.
As Warrior Met Coal is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth.
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Financial Strength of Warrior Met Coal
Investing in companies with poor financial strength carries a higher risk of permanent loss of capital. Hence, it is crucial to review a company's financial strength before deciding to buy its stock. The cash-to-debt ratio and interest coverage are excellent starting points for understanding a company's financial strength. Warrior Met Coal has a cash-to-debt ratio of 2.58, which is better than 78.71% of 587 companies in the Steel industry. Warrior Met Coal's overall financial strength is ranked 9 out of 10 by GuruFocus, indicating strong financial health.
Profitability and Growth of Warrior Met Coal
Investing in profitable companies, especially those with consistent profitability over the long term, is generally less risky. A company with high profit margins is usually a safer investment than those with low profit margins. Warrior Met Coal has been profitable 5 times over the past 10 years. Over the past twelve months, the company had a revenue of $1.60 billion and Earnings Per Share (EPS) of $8.92. Its operating margin is 34.96%, which ranks better than 98.01% of 603 companies in the Steel industry. Overall, the profitability of Warrior Met Coal is ranked 7 out of 10, indicating fair profitability.
Growth is a crucial factor 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. Conversely, if a company's revenue and earnings are declining, the value of the company will decrease. Warrior Met Coal's 3-year average revenue growth rate is worse than 50.17% of 586 companies in the Steel industry. However, Warrior Met Coal's 3-year average EBITDA growth rate is 22.8%, which ranks better than 55.01% of 509 companies in the Steel industry.
ROIC vs 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, Warrior Met Coal's ROIC was 41.71 while its WACC was 9.85.
Conclusion
In conclusion, the stock of Warrior Met Coal (NYSE:HCC) is estimated to be modestly overvalued. The company's financial condition is strong, and its profitability is fair. Its growth ranks better than 55.01% of 509 companies in the Steel industry. To learn more about Warrior Met Coal stock, you can check out its 30-Year Financials here.
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This article first appeared on GuruFocus.
