The stock of IRSA Inversiones y Representaciones SA (NYSE:IRS, 30-year Financials) appears to be 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 $3.71 per share and the market cap of $216.5 million, IRSA Inversiones y Representaciones SA stock gives every indication of being significantly overvalued. GF Value for IRSA Inversiones y Representaciones SA is shown in the chart below.
Because IRSA Inversiones y Representaciones SA is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 23.6% 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. IRSA Inversiones y Representaciones SA has a cash-to-debt ratio of 0.08, which is worse than 88% of the companies in Conglomerates industry. GuruFocus ranks the overall financial strength of IRSA Inversiones y Representaciones SA at 3 out of 10, which indicates that the financial strength of IRSA Inversiones y Representaciones SA is poor. This is the debt and cash of IRSA Inversiones y Representaciones SA over the past years:
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. IRSA Inversiones y Representaciones SA has been profitable 7 years over the past 10 years. During the past 12 months, the company had revenues of $821.3 million and earnings of $3.614 a share. Its operating margin of 8.46% better than 69% of the companies in Conglomerates industry. Overall, GuruFocus ranks IRSA Inversiones y Representaciones SA's profitability as fair. This is the revenue and net income of IRSA Inversiones y Representaciones 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 IRSA Inversiones y Representaciones SA is 23.6%, which ranks better than 89% of the companies in Conglomerates industry. The 3-year average EBITDA growth is 43.9%, which ranks better than 91% of the companies in Conglomerates 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, IRSA Inversiones y Representaciones SA's ROIC is 0.97 while its WACC came in at 3.60. The historical ROIC vs WACC comparison of IRSA Inversiones y Representaciones SA is shown below:
In short, IRSA Inversiones y Representaciones SA (NYSE:IRS, 30-year Financials) stock gives every indication of being significantly overvalued. The company's financial condition is poor and its profitability is fair. Its growth ranks better than 91% of the companies in Conglomerates industry. To learn more about IRSA Inversiones y Representaciones SA stock, you can check out its 30-year Financials here.
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