The stock of First Majestic Silver (NYSE:AG, 30-year Financials) is estimated to be 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 $15.125 per share and the market cap of $3.4 billion, First Majestic Silver stock gives every indication of being significantly overvalued. GF Value for First Majestic Silver is shown in the chart below.
Because First Majestic Silver is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 2.2% over the past three years and is estimated to grow 15.39% annually over the next three to five years.
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It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. First Majestic Silver has a cash-to-debt ratio of 1.59, which is worse than 67% of the companies in Metals & Mining industry. The overall financial strength of First Majestic Silver is 7 out of 10, which indicates that the financial strength of First Majestic Silver is fair. This is the debt and cash of First Majestic Silver over the past years:
It poses less risk to invest in profitable companies, especially those that have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. First Majestic Silver has been profitable 4 over the past 10 years. Over the past twelve months, the company had a revenue of $366.4 million and earnings of $0.1 a share. Its operating margin is 12.77%, which ranks better than 70% of the companies in Metals & Mining industry. Overall, GuruFocus ranks the profitability of First Majestic Silver at 4 out of 10, which indicates poor profitability. This is the revenue and net income of First Majestic Silver 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 First Majestic Silver is 2.2%, which ranks in the middle range of the companies in Metals & Mining industry. The 3-year average EBITDA growth rate is 138.3%, which ranks better than 100% of the companies in Metals & Mining industry.
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted 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 is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, First Majestic Silver's ROIC was 4.03, while its WACC came in at 6.08. The historical ROIC vs WACC comparison of First Majestic Silver is shown below:
In closing, The stock of First Majestic Silver (NYSE:AG, 30-year Financials) gives every indication of being significantly overvalued. The company's financial condition is fair and its profitability is poor. Its growth ranks better than 100% of the companies in Metals & Mining industry. To learn more about First Majestic Silver stock, you can check out its 30-year Financials here.
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