Centerra Gold Stock Is Estimated To Be Fairly Valued

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GF Value
Apr 11, 2021
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The stock of Centerra Gold (OTCPK:CAGDF, 30-year Financials) is believed to be fairly valued, 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 $9.27 per share and the market cap of $2.7 billion, Centerra Gold stock is believed to be fairly valued. GF Value for Centerra Gold is shown in the chart below.

Centerra Gold GF Value Chart

Because Centerra Gold is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which averaged 11.6% over the past three years and is estimated to grow 6.32% annually over the next three to 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. Centerra Gold has a cash-to-debt ratio of 29.01, which ranks in the middle range of the companies in Metals & Mining industry. Based on this, GuruFocus ranks Centerra Gold's financial strength as 9 out of 10, suggesting strong balance sheet. This is the debt and cash of Centerra Gold over the past years:

debt and cash

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. Centerra Gold has been profitable 7 over the past 10 years. Over the past twelve months, the company had a revenue of $1.7 billion and earnings of $1.33 a share. Its operating margin is 25.29%, which ranks better than 82% of the companies in Metals & Mining industry. Overall, GuruFocus ranks the profitability of Centerra Gold at 7 out of 10, which indicates fair profitability. This is the revenue and net income of Centerra Gold over the past years:

Revnue and Net Income

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. Centerra Gold's 3-year average revenue growth rate is better than 74% of the companies in Metals & Mining industry. Centerra Gold's 3-year average EBITDA growth rate is 17%, which ranks in the middle range of the companies in Metals & Mining 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, Centerra Gold's return on invested capital is 17.70, and its cost of capital is 6.93. The historical ROIC vs WACC comparison of Centerra Gold is shown below:


In conclusion, the stock of Centerra Gold (OTCPK:CAGDF, 30-year Financials) shows every sign of being fairly valued. The company's financial condition is strong and its profitability is fair. Its growth ranks in the middle range of the companies in Metals & Mining industry. To learn more about Centerra Gold stock, you can check out its 30-year Financials here.

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