The stock of India Globalization Capital (AMEX:IGC, 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 $1.5976 per share and the market cap of $72.5 million, India Globalization Capital stock gives every indication of being significantly overvalued. GF Value for India Globalization Capital is shown in the chart below.
Because India Globalization Capital is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 64.8% over the past five years.
Link: These companies may deliever higher future returns at reduced risk.
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. India Globalization Capital has a cash-to-debt ratio of 2.94, which is better than 77% of the companies in Conglomerates industry. GuruFocus ranks the overall financial strength of India Globalization Capital at 5 out of 10, which indicates that the financial strength of India Globalization Capital is fair. This is the debt and cash of India Globalization Capital 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. India Globalization Capital has been profitable 0 years over the past 10 years. During the past 12 months, the company had revenues of $0.8 million and loss of $0.23 a share. Its operating margin of -990.07% in the bottom 10% of the companies in Conglomerates industry. Overall, GuruFocus ranks India Globalization Capital's profitability as poor. This is the revenue and net income of India Globalization Capital over the past years:
Growth is probably the most important factor 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. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of India Globalization Capital is 64.8%, which ranks better than 96% of the companies in Conglomerates industry. The 3-year average EBITDA growth rate is -52.4%, which ranks in the bottom 10% 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, India Globalization Capital's ROIC is -46.69 while its WACC came in at 31.98. The historical ROIC vs WACC comparison of India Globalization Capital is shown below:
In closing, The stock of India Globalization Capital (AMEX:IGC, 30-year Financials) is believed to be significantly overvalued. The company's financial condition is fair and its profitability is poor. Its growth ranks in the bottom 10% of the companies in Conglomerates industry. To learn more about India Globalization Capital stock, you can check out its 30-year Financials here.
To find out the high quality companies that may deliever above average returns, please check out GuruFocus High Quality Low Capex Screener.
