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Liberty Latin America Stock Gives Every Indication Of Being Modestly Undervalued

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Apr 03, 2021
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The stock of Liberty Latin America (NAS:LILAK, 30-year Financials) appears to be modestly 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 $13.37 per share and the market cap of $3.1 billion, Liberty Latin America stock is estimated to be modestly undervalued. GF Value for Liberty Latin America is shown in the chart below.

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Because Liberty Latin America is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth, which is estimated to grow 8.59% 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. Liberty Latin America has a cash-to-debt ratio of 0.11, which is worse than 78% of the companies in Telecommunication Services industry. GuruFocus ranks the overall financial strength of Liberty Latin America at 3 out of 10, which indicates that the financial strength of Liberty Latin America is poor. This is the debt and cash of Liberty Latin America over the past years:

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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. Liberty Latin America has been profitable 2 over the past 10 years. Over the past twelve months, the company had a revenue of $3.8 billion and loss of $3.354 a share. Its operating margin is 12.55%, which ranks in the middle range of the companies in Telecommunication Services industry. Overall, the profitability of Liberty Latin America is ranked 4 out of 10, which indicates poor profitability. This is the revenue and net income of Liberty Latin America over the past years:

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Growth is probably one of the most important factors 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. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. Liberty Latin America's 3-year average revenue growth rate is in the middle range of the companies in Telecommunication Services industry. Liberty Latin America's 3-year average EBITDA growth rate is 2.6%, which ranks in the middle range of the companies in Telecommunication Services industry.

Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted 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 ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Liberty Latin America's ROIC was 3.49, while its WACC came in at 6.52. The historical ROIC vs WACC comparison of Liberty Latin America is shown below:

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Overall, The stock of Liberty Latin America (NAS:LILAK, 30-year Financials) is estimated to be modestly undervalued. The company's financial condition is poor and its profitability is poor. Its growth ranks in the middle range of the companies in Telecommunication Services industry. To learn more about Liberty Latin America stock, you can check out its 30-year Financials here.

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