The stock of Loma Negra Cia Industria Argentina SA (NYSE:LOMA, 30-year Financials) gives every indication of being significantly 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 $6.34 per share and the market cap of $755.7 million, Loma Negra Cia Industria Argentina SA stock appears to be significantly overvalued. GF Value for Loma Negra Cia Industria Argentina SA is shown in the chart below.
Because Loma Negra Cia Industria Argentina SA is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 1.4% over the past 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. Loma Negra Cia Industria Argentina SA has a cash-to-debt ratio of 0.63, which is in the middle range of the companies in Building Materials industry. The overall financial strength of Loma Negra Cia Industria Argentina SA is 6 out of 10, which indicates that the financial strength of Loma Negra Cia Industria Argentina SA is fair. This is the debt and cash of Loma Negra Cia Industria Argentina SA over the past years:
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Loma Negra Cia Industria Argentina SA has been profitable 7 years over the past 10 years. During the past 12 months, the company had revenues of $541.8 million and earnings of $1.418 a share. Its operating margin of 21.39% better than 84% of the companies in Building Materials industry. Overall, GuruFocus ranks Loma Negra Cia Industria Argentina SA's profitability as strong. This is the revenue and net income of Loma Negra Cia Industria Argentina 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 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 Loma Negra Cia Industria Argentina SA is 1.4%, which ranks in the middle range of the companies in Building Materials industry. The 3-year average EBITDA growth rate is 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, Loma Negra Cia Industria Argentina SA's ROIC is 10.36 while its WACC came in at 7.97. The historical ROIC vs WACC comparison of Loma Negra Cia Industria Argentina SA is shown below:
In conclusion, Loma Negra Cia Industria Argentina SA (NYSE:LOMA, 30-year Financials) stock is believed to be significantly overvalued. The company's financial condition is fair and its profitability is strong. Its growth ranks in the middle range of the companies in Building Materials industry. To learn more about Loma Negra Cia Industria Argentina SA stock, you can check out its 30-year Financials here.
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