The stock of Aqua Metals (NAS:AQMS, 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 $3.4 per share and the market cap of $231.3 million, Aqua Metals stock shows every sign of being significantly overvalued. GF Value for Aqua Metals is shown in the chart below.
Because Aqua Metals is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth.
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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. Aqua Metals has a cash-to-debt ratio of 12.82, which which ranks better than 89% of the companies in Waste Management industry. The overall financial strength of Aqua Metals is 4 out of 10, which indicates that the financial strength of Aqua Metals is poor. This is the debt and cash of Aqua Metals 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. Aqua Metals has been profitable 0 over the past 10 years. Over the past twelve months, the company had a revenue of $0.1 million and loss of $0.41 a share. Its operating margin is -14377.78%, which ranks in the bottom 10% of the companies in Waste Management industry. Overall, the profitability of Aqua Metals is ranked 1 out of 10, which indicates poor profitability. This is the revenue and net income of Aqua Metals 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. Aqua Metals's 3-year average revenue growth rate is in the bottom 10% of the companies in Waste Management industry. Aqua Metals's 3-year average EBITDA growth rate is 30.7%, which ranks better than 79% of the companies in Waste Management 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, Aqua Metals's return on invested capital is -37.86, and its cost of capital is 12.81. The historical ROIC vs WACC comparison of Aqua Metals is shown below:
In summary, the stock of Aqua Metals (NAS:AQMS, 30-year Financials) shows every sign of being significantly overvalued. The company's financial condition is poor and its profitability is poor. Its growth ranks better than 79% of the companies in Waste Management industry. To learn more about Aqua Metals stock, you can check out its 30-year Financials here.
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