The stock of Exxon Mobil (NYSE:XOM, 30-year Financials) appears 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 $61.45 per share and the market cap of $260.2 billion, Exxon Mobil stock is estimated to be modestly overvalued. GF Value for Exxon Mobil is shown in the chart below.
Because Exxon Mobil 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. Exxon Mobil has a cash-to-debt ratio of 0.06, which is worse than 82% of the companies in Oil & Gas industry. The overall financial strength of Exxon Mobil is 4 out of 10, which indicates that the financial strength of Exxon Mobil is poor. This is the debt and cash of Exxon Mobil 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. Exxon Mobil has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of $181 billion and loss of $4.47 a share. Its operating margin is -14.39%, which ranks worse than 71% of the companies in Oil & Gas industry. Overall, the profitability of Exxon Mobil is ranked 5 out of 10, which indicates fair profitability. This is the revenue and net income of Exxon Mobil 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 Exxon Mobil is -9.1%, which ranks in the middle range of the companies in Oil & Gas industry. The 3-year average EBITDA growth is -22.5%, which ranks worse than 75% of the companies in Oil & Gas 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, Exxon Mobil's return on invested capital is -6.37, and its cost of capital is 8.84. The historical ROIC vs WACC comparison of Exxon Mobil is shown below:
Overall, The stock of Exxon Mobil (NYSE:XOM, 30-year Financials) appears to be modestly overvalued. The company's financial condition is poor and its profitability is fair. Its growth ranks worse than 75% of the companies in Oil & Gas industry. To learn more about Exxon Mobil stock, you can check out its 30-year Financials here.
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