The stock of Gold Fields (NYSE:GFI, 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 $9.45 per share and the market cap of $8.3 billion, Gold Fields stock shows every sign of being modestly overvalued. GF Value for Gold Fields is shown in the chart below.
Because Gold Fields is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth, which averaged 14.2% over the past 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. Gold Fields has a cash-to-debt ratio of 0.45, which is worse than 79% of the companies in Metals & Mining industry. GuruFocus ranks the overall financial strength of Gold Fields at 6 out of 10, which indicates that the financial strength of Gold Fields is fair. This is the debt and cash of Gold Fields over the past years:
It is less risky to invest in profitable companies, especially those with consistent profitability over long term. A company with high profit margins is usually a safer investment than those with low profit margins. Gold Fields has been profitable 6 over the past 10 years. Over the past twelve months, the company had a revenue of $3.9 billion and earnings of $0.81 a share. Its operating margin is 38.02%, which ranks better than 92% of the companies in Metals & Mining industry. Overall, the profitability of Gold Fields is ranked 7 out of 10, which indicates fair profitability. This is the revenue and net income of Gold Fields 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 Gold Fields is 14.2%, which ranks better than 78% of the companies in Metals & Mining industry. The 3-year average EBITDA growth rate is 28.4%, which ranks better than 72% of the companies in Metals & Mining 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, Gold Fields's ROIC is 14.94 while its WACC came in at 12.84. The historical ROIC vs WACC comparison of Gold Fields is shown below:
In closing, The stock of Gold Fields (NYSE:GFI, 30-year Financials) gives every indication of being modestly overvalued. The company's financial condition is fair and its profitability is fair. Its growth ranks better than 72% of the companies in Metals & Mining industry. To learn more about Gold Fields stock, you can check out its 30-year Financials here.
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