The stock of Sandfire Resources (STU:S2Z, 30-year Financials) shows every sign of being 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 3.94 per share and the market cap of 706.4 million, Sandfire Resources stock is estimated to be modestly undervalued. GF Value for Sandfire Resources is shown in the chart below.
Because Sandfire Resources is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth, which averaged 3.4% over the past five years.
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. Sandfire Resources has a cash-to-debt ratio of 20.47, which ranks in the middle range of the companies in Metals & Mining industry. Based on this, GuruFocus ranks Sandfire Resources's financial strength as 8 out of 10, suggesting strong balance sheet. This is the debt and cash of Sandfire Resources 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. Sandfire Resources has been profitable 8 over the past 10 years. Over the past twelve months, the company had a revenue of 408.1 million and earnings of 0.346 a share. Its operating margin is 25.13%, which ranks better than 81% of the companies in Metals & Mining industry. Overall, the profitability of Sandfire Resources is ranked 7 out of 10, which indicates fair profitability. This is the revenue and net income of Sandfire Resources over the past years:
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. Sandfire Resources's 3-year average revenue growth rate is in the middle range of the companies in Metals & Mining industry. Sandfire Resources's 3-year average EBITDA growth rate is 7.5%, which ranks in the middle range 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, Sandfire Resources's ROIC is 18.23 while its WACC came in at 9.40. The historical ROIC vs WACC comparison of Sandfire Resources is shown below:
In closing, Sandfire Resources (STU:S2Z, 30-year Financials) stock shows every sign of being modestly undervalued. 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 Sandfire Resources stock, you can check out its 30-year Financials here.
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