The stock of Cementos Pacasmayo SAA (NYSE:CPAC, 30-year Financials) appears to be significantly undervalued, 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 $6.2 per share and the market cap of $575.5 million, Cementos Pacasmayo SAA stock is estimated to be significantly undervalued. GF Value for Cementos Pacasmayo SAA is shown in the chart below.
Because Cementos Pacasmayo SAA is significantly undervalued, the long-term return of its stock is likely to be much higher than its business growth, which averaged 3.4% over the past three years and is estimated to grow 4.36% annually over the next three to five years.
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Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Thus, it is important to carefully review the financial strength of a company before deciding whether to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company. Cementos Pacasmayo SAA has a cash-to-debt ratio of 0.24, which is worse than 67% of the companies in Building Materials industry. GuruFocus ranks the overall financial strength of Cementos Pacasmayo SAA at 4 out of 10, which indicates that the financial strength of Cementos Pacasmayo SAA is poor. This is the debt and cash of Cementos Pacasmayo SAA 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. Cementos Pacasmayo SAA has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $367.6 million and earnings of $0.228 a share. Its operating margin is 14.82%, which ranks better than 67% of the companies in Building Materials industry. Overall, the profitability of Cementos Pacasmayo SAA is ranked 8 out of 10, which indicates strong profitability. This is the revenue and net income of Cementos Pacasmayo SAA 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 stock performance of a company. A faster growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Cementos Pacasmayo SAA is 3.4%, which ranks in the middle range of the companies in Building Materials industry. The 3-year average EBITDA growth rate is 1.1%, which ranks in the middle range of the companies in Building Materials 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, Cementos Pacasmayo SAA’s ROIC is 5.66 while its WACC came in at 6.47. The historical ROIC vs WACC comparison of Cementos Pacasmayo SAA is shown below:
Overall, Cementos Pacasmayo SAA (NYSE:CPAC, 30-year Financials) stock shows every sign of being significantly undervalued. The company's financial condition is poor and its profitability is strong. Its growth ranks in the middle range of the companies in Building Materials industry. To learn more about Cementos Pacasmayo SAA stock, you can check out its 30-year Financials here.
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