The stock of RWE AG (OTCPK:RWEOY, 30-year Financials) is believed to be modestly 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 $37.69 per share and the market cap of $25.5 billion, RWE AG stock is believed to be modestly overvalued. GF Value for RWE AG is shown in the chart below.
Because RWE AG is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth, which is estimated to grow 2.13% 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. RWE AG has a cash-to-debt ratio of 10000.00, which is better than 100% of the companies in the industry of Utilities - Regulated. The overall financial strength of RWE AG is 5 out of 10, which indicates that the financial strength of RWE AG is fair. This is the debt and cash of RWE AG 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. RWE AG has been profitable 7 over the past 10 years. Over the past twelve months, the company had a revenue of $17.3 billion and earnings of $1.957 a share. Its operating margin is -20.02%, which ranks in the bottom 10% of the companies in the industry of Utilities - Regulated. Overall, the profitability of RWE AG is ranked 4 out of 10, which indicates poor profitability. This is the revenue and net income of RWE AG 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 performance of a company's stock. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of RWE AG is -1.5%, which ranks worse than 71% of the companies in the industry of Utilities - Regulated. The 3-year average EBITDA growth rate is 6.7%, which ranks in the middle range of the companies in the industry of Utilities - Regulated.
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average 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. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, RWE AG's return on invested capital is -6.89, and its cost of capital is 5.46. The historical ROIC vs WACC comparison of RWE AG is shown below:
In short, the stock of RWE AG (OTCPK:RWEOY, 30-year Financials) is believed to be modestly overvalued. The company's financial condition is fair and its profitability is poor. Its growth ranks in the middle range of the companies in the industry of Utilities - Regulated. To learn more about RWE AG stock, you can check out its 30-year Financials here.
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