The stock of First Majestic Silver (NYSE:AG, 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 $18.05 per share and the market cap of $4.5 billion, First Majestic Silver stock is believed to be significantly overvalued. GF Value for First Majestic Silver is shown in the chart below.
Because First Majestic Silver is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 2.2% over the past three years and is estimated to grow 13.18% annually over the next three to five years.
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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. First Majestic Silver has a cash-to-debt ratio of 1.33, which is worse than 70% of the companies in Metals & Mining industry. The overall financial strength of First Majestic Silver is 7 out of 10, which indicates that the financial strength of First Majestic Silver is fair. This is the debt and cash of First Majestic Silver 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. First Majestic Silver has been profitable 4 over the past 10 years. Over the past twelve months, the company had a revenue of $380.8 million and earnings of $0.26 a share. Its operating margin is 13.94%, which ranks better than 69% of the companies in Metals & Mining industry. Overall, the profitability of First Majestic Silver is ranked 4 out of 10, which indicates poor profitability. This is the revenue and net income of First Majestic Silver 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 First Majestic Silver is 2.2%, which ranks in the middle range of the companies in Metals & Mining industry. The 3-year average EBITDA growth is 138.3%, which ranks better than 100% of the companies in Metals & Mining industry.
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, First Majestic Silver's return on invested capital is 5.22, and its cost of capital is 6.31. The historical ROIC vs WACC comparison of First Majestic Silver is shown below:
In conclusion, The stock of First Majestic Silver (NYSE:AG, 30-year Financials) is estimated to be significantly overvalued. The company's financial condition is fair and its profitability is poor. Its growth ranks better than 100% of the companies in Metals & Mining industry. To learn more about First Majestic Silver stock, you can check out its 30-year Financials here.
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