The stock of Azure Power Global (NYSE:AZRE, 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 $20.52 per share and the market cap of $985.7 million, Azure Power Global stock shows every sign of being significantly overvalued. GF Value for Azure Power Global is shown in the chart below.
Because Azure Power Global is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which is estimated to grow 18.03% annually over the next three to five years.
Link: These companies may deliever higher future returns at reduced risk.
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. Azure Power Global has a cash-to-debt ratio of 0.09, which is worse than 68% of the companies in the industry of Utilities - Independent Power Producers. The overall financial strength of Azure Power Global is 3 out of 10, which indicates that the financial strength of Azure Power Global is poor. This is the debt and cash of Azure Power Global 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. Azure Power Global has been profitable 1 years over the past 10 years. During the past 12 months, the company had revenues of $196.8 million and loss of $0.503 a share. Its operating margin of 45.19% better than 89% of the companies in the industry of Utilities - Independent Power Producers. Overall, GuruFocus ranks Azure Power Global's profitability as fair. This is the revenue and net income of Azure Power Global 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 Azure Power Global is -6.1%, which ranks worse than 73% of the companies in the industry of Utilities - Independent Power Producers. The 3-year average EBITDA growth rate is -10.1%, which ranks worse than 82% of the companies in the industry of Utilities - Independent Power Producers.
Another way to look at the profitability of a company is to compare its return on invested capital and the weighted 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. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, Azure Power Global's return on invested capital is 5.70, and its cost of capital is 9.20. The historical ROIC vs WACC comparison of Azure Power Global is shown below:
Overall, The stock of Azure Power Global (NYSE:AZRE, 30-year Financials) is believed to be significantly overvalued. The company's financial condition is poor and its profitability is fair. Its growth ranks worse than 82% of the companies in the industry of Utilities - Independent Power Producers. To learn more about Azure Power Global 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.
