The stock of Compx International (AMEX:CIX, 30-year Financials) shows every sign 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 $20.65 per share and the market cap of $256.1 million, Compx International stock appears to be significantly overvalued. GF Value for Compx International is shown in the chart below.
Because Compx International is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 0.7% over the past five years.
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Since investing in companies with low financial strength could result in permanent capital loss, investors must carefully review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. Compx International has a cash-to-debt ratio of 10000.00, which ranks better than 100% of the companies in Business Services industry. Based on this, GuruFocus ranks Compx International's financial strength as 10 out of 10, suggesting strong balance sheet. This is the debt and cash of Compx International over the past years:
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Compx International has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $118.2 million and earnings of $0.87 a share. Its operating margin is 10.68%, which ranks better than 74% of the companies in Business Services industry. Overall, the profitability of Compx International is ranked 7 out of 10, which indicates fair profitability. This is the revenue and net income of Compx International 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 Compx International is 0.7%, which ranks in the middle range of the companies in Business Services industry. The 3-year average EBITDA growth is -6.2%, which ranks worse than 70% of the companies in Business Services 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, Compx International's return on invested capital is 8.70, and its cost of capital is 4.08. The historical ROIC vs WACC comparison of Compx International is shown below:
In short, Compx International (AMEX:CIX, 30-year Financials) stock is believed to be significantly overvalued. The company's financial condition is strong and its profitability is fair. Its growth ranks worse than 70% of the companies in Business Services industry. To learn more about Compx International stock, you can check out its 30-year Financials here.
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