The stock of Mechel PAO (NYSE:MTL, 30-year Financials) is believed to be modestly 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 $1.95 per share and the market cap of $530 million, Mechel PAO stock shows every sign of being modestly overvalued. GF Value for Mechel PAO is shown in the chart below.
Because Mechel PAO is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth.
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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. Mechel PAO has a cash-to-debt ratio of 0.01, which is in the bottom 10% of the companies in Steel industry. The overall financial strength of Mechel PAO is 2 out of 10, which indicates that the financial strength of Mechel PAO is poor. This is the debt and cash of Mechel PAO 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. Mechel PAO has been profitable 6 over the past 10 years. Over the past twelve months, the company had a revenue of $3.5 billion and earnings of $0.366 a share. Its operating margin is 9.17%, which ranks better than 78% of the companies in Steel industry. Overall, the profitability of Mechel PAO is ranked 5 out of 10, which indicates fair profitability. This is the revenue and net income of Mechel PAO 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 Mechel PAO is -3.6%, which ranks worse than 68% of the companies in Steel industry. The 3-year average EBITDA growth rate is -76.7%, which ranks in the bottom 10% of the companies in Steel 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, Mechel PAO's ROIC is 4.78 while its WACC came in at 6.46. The historical ROIC vs WACC comparison of Mechel PAO is shown below:
In conclusion, Mechel PAO (NYSE:MTL, 30-year Financials) stock shows every sign of being modestly overvalued. The company's financial condition is poor and its profitability is fair. Its growth ranks in the bottom 10% of the companies in Steel industry. To learn more about Mechel PAO stock, you can check out its 30-year Financials here.
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