The stock of First Quantum Minerals (OTCPK:FQVLF, 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 $22.20049 per share and the market cap of $15.2 billion, First Quantum Minerals stock is believed to be significantly overvalued. GF Value for First Quantum Minerals is shown in the chart below.
Because First Quantum Minerals is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 16.2% over the past three years and is estimated to grow 10.02% annually over the next three to five years.
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Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. First Quantum Minerals has a cash-to-debt ratio of 0.11, which which ranks in the bottom 10% of the companies in Metals & Mining industry. The overall financial strength of First Quantum Minerals is 3 out of 10, which indicates that the financial strength of First Quantum Minerals is poor. This is the debt and cash of First Quantum Minerals over the past years:
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. First Quantum Minerals has been profitable 5 over the past 10 years. Over the past twelve months, the company had a revenue of $5.2 billion and loss of $0.27 a share. Its operating margin is 18.11%, which ranks better than 76% of the companies in Metals & Mining industry. Overall, the profitability of First Quantum Minerals is ranked 7 out of 10, which indicates fair profitability. This is the revenue and net income of First Quantum Minerals 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. First Quantum Minerals's 3-year average revenue growth rate is better than 81% of the companies in Metals & Mining industry. First Quantum Minerals's 3-year average EBITDA growth rate is 26.1%, which ranks better than 69% of the companies in Metals & Mining 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, First Quantum Minerals's return on invested capital is -58.51, and its cost of capital is -6.46. The historical ROIC vs WACC comparison of First Quantum Minerals is shown below:
In conclusion, First Quantum Minerals (OTCPK:FQVLF, 30-year Financials) stock shows every sign of being significantly overvalued. The company's financial condition is poor and its profitability is fair. Its growth ranks better than 69% of the companies in Metals & Mining industry. To learn more about First Quantum Minerals stock, you can check out its 30-year Financials here.
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