The stock of United States Lime & Minerals (NAS:USLM, 30-year Financials) gives every indication of being 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 $142.76 per share and the market cap of $807.4 million, United States Lime & Minerals stock shows every sign of being significantly overvalued. GF Value for United States Lime & Minerals is shown in the chart below.
Because United States Lime & Minerals is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 3.2% over the past five years.
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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. United States Lime & Minerals has a cash-to-debt ratio of 46.43, which is better than 91% of the companies in Building Materials industry. GuruFocus ranks the overall financial strength of United States Lime & Minerals at 9 out of 10, which indicates that the financial strength of United States Lime & Minerals is strong. This is the debt and cash of United States Lime & Minerals over the past years:
It is less risky to invest in profitable companies, especially those with consistent profitability over long term. A company with high profit margins is usually a safer investment than those with low profit margins. United States Lime & Minerals has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $163.9 million and earnings of $5.25 a share. Its operating margin is 22.87%, which ranks better than 85% of the companies in Building Materials industry. Overall, the profitability of United States Lime & Minerals is ranked 8 out of 10, which indicates strong profitability. This is the revenue and net income of United States Lime & Minerals over the past years:
Growth is probably one of the most important factors 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. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. United States Lime & Minerals's 3-year average revenue growth rate is in the middle range of the companies in Building Materials industry. United States Lime & Minerals's 3-year average EBITDA growth rate is 8.6%, which ranks in the middle range of the companies in Building Materials industry.
Another way to look at the profitability of a company is to compare its return on invested capital and the weighted cost of capital. 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. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, United States Lime & Minerals's return on invested capital is 16.67, and its cost of capital is 5.33. The historical ROIC vs WACC comparison of United States Lime & Minerals is shown below:
Overall, the stock of United States Lime & Minerals (NAS:USLM, 30-year Financials) is estimated to be significantly overvalued. The company's financial condition is strong and its profitability is strong. Its growth ranks in the middle range of the companies in Building Materials industry. To learn more about United States Lime & Minerals stock, you can check out its 30-year Financials here.
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