The stock of Endeavour Mining (OTCPK:EDVMF, 30-year Financials) shows every sign of being 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 $21.2583 per share and the market cap of $5.2 billion, Endeavour Mining stock is estimated to be significantly undervalued. GF Value for Endeavour Mining is shown in the chart below.
Because Endeavour Mining is significantly undervalued, the long-term return of its stock is likely to be much higher than its business growth, which averaged 30% over the past five years.
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Since investing in companies with low financial strength could result in permanent capital loss, investors must carefully review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. Endeavour Mining has a cash-to-debt ratio of 0.89, which ranks worse than 72% of the companies in Metals & Mining industry. Based on this, GuruFocus ranks Endeavour Mining's financial strength as 6 out of 10, suggesting fair balance sheet. This is the debt and cash of Endeavour Mining 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. Endeavour Mining has been profitable 2 over the past 10 years. Over the past twelve months, the company had a revenue of $1.4 billion and earnings of $0.42 a share. Its operating margin is 30.97%, which ranks better than 86% of the companies in Metals & Mining industry. Overall, GuruFocus ranks the profitability of Endeavour Mining at 5 out of 10, which indicates fair profitability. This is the revenue and net income of Endeavour Mining 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 Endeavour Mining is 30%, which ranks better than 90% of the companies in Metals & Mining industry. The 3-year average EBITDA growth rate is 41.8%, which ranks better than 85% of the companies in Metals & Mining 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, Endeavour Mining's ROIC was 12.84, while its WACC came in at 4.82. The historical ROIC vs WACC comparison of Endeavour Mining is shown below:
To conclude, The stock of Endeavour Mining (OTCPK:EDVMF, 30-year Financials) appears to be significantly undervalued. The company's financial condition is fair and its profitability is fair. Its growth ranks better than 85% of the companies in Metals & Mining industry. To learn more about Endeavour Mining stock, you can check out its 30-year Financials here.
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