The stock of Cosan SA (NYSE:CSAN, 30-year Financials) appears to be 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 $15.84 per share and the market cap of $6.1 billion, Cosan SA stock shows every sign of being significantly undervalued. GF Value for Cosan SA is shown in the chart below.
Because Cosan SA is significantly undervalued, the long-term return of its stock is likely to be much higher than its business growth, which averaged 23.3% 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. Cosan SA has a cash-to-debt ratio of 0.51, which is in the middle range of the companies in Oil & Gas industry. The overall financial strength of Cosan SA is 4 out of 10, which indicates that the financial strength of Cosan SA is poor. This is the debt and cash of Cosan SA 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. Cosan SA has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $2.6 billion and earnings of $0.36 a share. Its operating margin is 13.24%, which ranks better than 78% of the companies in Oil & Gas industry. Overall, the profitability of Cosan SA is ranked 7 out of 10, which indicates fair profitability. This is the revenue and net income of Cosan SA over the past years:
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Cosan SA is 23.3%, which ranks better than 86% of the companies in Oil & Gas industry. The 3-year average EBITDA growth is -4.4%, which ranks in the middle range of the companies in Oil & Gas industry.
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average 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. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Cosan SA's return on invested capital is 5.29, and its cost of capital is 7.22. The historical ROIC vs WACC comparison of Cosan SA is shown below:
Overall, the stock of Cosan SA (NYSE:CSAN, 30-year Financials) shows every sign of being significantly undervalued. The company's financial condition is poor and its profitability is fair. Its growth ranks in the middle range of the companies in Oil & Gas industry. To learn more about Cosan SA stock, you can check out its 30-year Financials here.
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