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Ameriprise Financial Stock Is Believed To Be Significantly Overvalued

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GF Value
May 20, 2021
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The stock of Ameriprise Financial (NYSE:AMP, 30-year Financials) is believed 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 $252.26 per share and the market cap of $29.2 billion, Ameriprise Financial stock gives every indication of being significantly overvalued. GF Value for Ameriprise Financial is shown in the chart below.


Because Ameriprise Financial is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 7% over the past three years and is estimated to grow 3.29% annually over the next three to five years.

Link: These companies may deliever higher future returns at reduced risk.

Since investing in companies with low financial strength could result in permanent capital loss, investors must carefully review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. Ameriprise Financial has a cash-to-debt ratio of 1.01, which ranks better than 100% of the companies in Market Overview industry. Based on this, GuruFocus ranks Ameriprise Financial's financial strength as 4 out of 10, suggesting poor balance sheet. This is the debt and cash of Ameriprise Financial 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. Ameriprise Financial has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $12.3 billion and loss of $0.4 a share. Its operating margin is 0.00%, which ranks better than 100% of the companies in Market Overview industry. Overall, the profitability of Ameriprise Financial is ranked 6 out of 10, which indicates fair profitability. This is the revenue and net income of Ameriprise Financial 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 Ameriprise Financial is 7%, which ranks better than 100% of the companies in Market Overview industry. The 3-year average EBITDA growth is 1.4%, which ranks better than 100% of the companies in Market Overview industry.

Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted 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 ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Ameriprise Financial's ROIC was 0.27, while its WACC came in at 10.22.

In closing, Ameriprise Financial (NYSE:AMP, 30-year Financials) stock is believed to be significantly overvalued. The company's financial condition is poor and its profitability is fair. Its growth ranks better than 100% of the companies in Market Overview industry. To learn more about Ameriprise Financial stock, you can check out its 30-year Financials here.

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