The stock of Costamare (NYSE:CMRE, 30-year Financials) gives every indication of being significantly 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 $9.36 per share and the market cap of $1.1 billion, Costamare stock appears to be significantly overvalued. GF Value for Costamare is shown in the chart below.
Because Costamare is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth.
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. Costamare has a cash-to-debt ratio of 0.09, which is worse than 82% of the companies in Transportation industry. The overall financial strength of Costamare is 3 out of 10, which indicates that the financial strength of Costamare is poor. This is the debt and cash of Costamare 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. Costamare has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $460.3 million and loss of $0.18 a share. Its operating margin is 38.88%, which ranks better than 96% of the companies in Transportation industry. Overall, GuruFocus ranks the profitability of Costamare at 6 out of 10, which indicates fair profitability. This is the revenue and net income of Costamare 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 Costamare is -2.4%, which ranks worse than 66% of the companies in Transportation industry. The 3-year average EBITDA growth is -12.5%, which ranks worse than 82% of the companies in Transportation 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, Costamare's return on invested capital is 5.97, and its cost of capital is 7.33. The historical ROIC vs WACC comparison of Costamare is shown below:
In short, the stock of Costamare (NYSE:CMRE, 30-year Financials) is believed to be significantly overvalued. The company's financial condition is poor and its profitability is fair. Its growth ranks worse than 82% of the companies in Transportation industry. To learn more about Costamare stock, you can check out its 30-year Financials here.
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