The stock of Sociedad Quimica Y Minera De Chile SA (NYSE:SQM, 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 $51.75 per share and the market cap of $13.6 billion, Sociedad Quimica Y Minera De Chile SA stock is believed to be significantly overvalued. GF Value for Sociedad Quimica Y Minera De Chile SA is shown in the chart below.
Because Sociedad Quimica Y Minera De Chile SA is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which is estimated to grow 4.82% annually over the next three to five years.
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Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. Sociedad Quimica Y Minera De Chile SA has a cash-to-debt ratio of 0.44, which which ranks in the middle range of the companies in Chemicals industry. The overall financial strength of Sociedad Quimica Y Minera De Chile SA is 5 out of 10, which indicates that the financial strength of Sociedad Quimica Y Minera De Chile SA is fair. This is the debt and cash of Sociedad Quimica Y Minera De Chile SA over the past years:
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Sociedad Quimica Y Minera De Chile SA has been profitable 10 years over the past 10 years. During the past 12 months, the company had revenues of $1.8 billion and earnings of $0.621 a share. Its operating margin of 17.02% better than 81% of the companies in Chemicals industry. Overall, GuruFocus ranks Sociedad Quimica Y Minera De Chile SA's profitability as fair. This is the revenue and net income of Sociedad Quimica Y Minera De Chile SA over the past years:
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Sociedad Quimica Y Minera De Chile SA is -0.1%, which ranks in the middle range of the companies in Chemicals industry. The 3-year average EBITDA growth is -15.7%, which ranks worse than 85% of the companies in Chemicals industry.
One can also evaluate a company's profitability 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 return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, Sociedad Quimica Y Minera De Chile SA's ROIC is 6.40 while its WACC came in at 6.75. The historical ROIC vs WACC comparison of Sociedad Quimica Y Minera De Chile SA is shown below:
In conclusion, the stock of Sociedad Quimica Y Minera De Chile SA (NYSE:SQM, 30-year Financials) gives every indication of being significantly overvalued. The company's financial condition is fair and its profitability is fair. Its growth ranks worse than 85% of the companies in Chemicals industry. To learn more about Sociedad Quimica Y Minera De Chile SA stock, you can check out its 30-year Financials here.
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