The stock of The Chemours Co (NYSE:CC, 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 $28.16 per share and the market cap of $4.7 billion, The Chemours Co stock is estimated to be modestly overvalued. GF Value for The Chemours Co is shown in the chart below.
Because The Chemours Co is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth, which is estimated to grow 0.23% annually over the next three to five years.
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. The Chemours Co has a cash-to-debt ratio of 0.26, which is worse than 76% of the companies in Chemicals industry. The overall financial strength of The Chemours Co is 4 out of 10, which indicates that the financial strength of The Chemours Co is poor. This is the debt and cash of The Chemours Co over the past years:
It poses less risk to invest in profitable companies, especially those that have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. The Chemours Co has been profitable 8 over the past 10 years. Over the past twelve months, the company had a revenue of $5 billion and earnings of $1.33 a share. Its operating margin is 9.02%, which ranks in the middle range of the companies in Chemicals industry. Overall, GuruFocus ranks the profitability of The Chemours Co at 7 out of 10, which indicates fair profitability. This is the revenue and net income of The Chemours Co 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 The Chemours Co is -2.6%, which ranks worse than 74% of the companies in Chemicals industry. The 3-year average EBITDA growth rate is -16.5%, which ranks worse than 85% of the companies in Chemicals 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, The Chemours Co's return on invested capital is 10.52, and its cost of capital is 9.31. The historical ROIC vs WACC comparison of The Chemours Co is shown below:
Overall, the stock of The Chemours Co (NYSE:CC, 30-year Financials) shows every sign of being modestly overvalued. The company's financial condition is poor and its profitability is fair. Its growth ranks worse than 85% of the companies in Chemicals industry. To learn more about The Chemours Co stock, you can check out its 30-year Financials here.
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