The stock of Enagas SA (OTCPK:ENGGY, 30-year Financials) gives every indication of being 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 $11.77 per share and the market cap of $6.2 billion, Enagas SA stock appears to be modestly overvalued. GF Value for Enagas SA is shown in the chart below.
Because Enagas SA is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth.
Link: These companies may deliever higher future returns at reduced risk.
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. Enagas SA has a cash-to-debt ratio of 0.19, which is in the middle range of the companies in the industry of Utilities - Regulated. The overall financial strength of Enagas SA is 3 out of 10, which indicates that the financial strength of Enagas SA is poor. This is the debt and cash of Enagas SA 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. Enagas SA has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $1.2 billion and earnings of $0.939 a share. Its operating margin is 45.77%, which ranks better than 96% of the companies in the industry of Utilities - Regulated. Overall, the profitability of Enagas SA is ranked 6 out of 10, which indicates fair profitability. This is the revenue and net income of Enagas SA 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 Enagas SA is -10.9%, which ranks in the bottom 10% of the companies in the industry of Utilities - Regulated. The 3-year average EBITDA growth rate is -8.9%, which ranks worse than 84% of the companies in the industry of Utilities - Regulated.
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, Enagas SA’s return on invested capital is 4.58, and its cost of capital is 2.96. The historical ROIC vs WACC comparison of Enagas SA is shown below:
To conclude, the stock of Enagas SA (OTCPK:ENGGY, 30-year Financials) gives every indication of being modestly overvalued. The company's financial condition is poor and its profitability is fair. Its growth ranks worse than 84% of the companies in the industry of Utilities - Regulated. To learn more about Enagas SA stock, you can check out its 30-year Financials here.
To find out the high quality companies that may deliever above average returns, please check out GuruFocus High Quality Low Capex Screener.
