The stock of Kronos Worldwide (NYSE:KRO, 30-year Financials) appears 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 $15.61 per share and the market cap of $1.8 billion, Kronos Worldwide stock is believed to be modestly overvalued. GF Value for Kronos Worldwide is shown in the chart below.
Because Kronos Worldwide is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth.
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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. Kronos Worldwide has a cash-to-debt ratio of 0.76, which ranks in the middle range of the companies in Chemicals industry. Based on this, GuruFocus ranks Kronos Worldwide's financial strength as 5 out of 10, suggesting fair balance sheet. This is the debt and cash of Kronos Worldwide 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. Kronos Worldwide has been profitable 8 over the past 10 years. Over the past twelve months, the company had a revenue of $1.7 billion and earnings of $0.49 a share. Its operating margin is 6.22%, which ranks in the middle range of the companies in Chemicals industry. Overall, the profitability of Kronos Worldwide is ranked 6 out of 10, which indicates fair profitability. This is the revenue and net income of Kronos Worldwide 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 Kronos Worldwide is -1.7%, which ranks worse than 66% of the companies in Chemicals industry. The 3-year average EBITDA growth is -23.5%, which ranks in the bottom 10% 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, Kronos Worldwide's ROIC is 6.05 while its WACC came in at 7.61. The historical ROIC vs WACC comparison of Kronos Worldwide is shown below:
Overall, the stock of Kronos Worldwide (NYSE:KRO, 30-year Financials) gives every indication of being modestly overvalued. The company's financial condition is fair and its profitability is fair. Its growth ranks in the bottom 10% of the companies in Chemicals industry. To learn more about Kronos Worldwide stock, you can check out its 30-year Financials here.
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