The stock of Caledonia Mining PLC (AMEX:CMCL, 30-year Financials) is estimated to be fairly valued, 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 $11.92 per share and the market cap of $144.5 million, Caledonia Mining PLC stock appears to be fairly valued. GF Value for Caledonia Mining PLC is shown in the chart below.
Because Caledonia Mining PLC is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which averaged 9.1% over the past 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. Caledonia Mining PLC has a cash-to-debt ratio of 26.21, which is in the middle range of the companies in Metals & Mining industry. The overall financial strength of Caledonia Mining PLC is 9 out of 10, which indicates that the financial strength of Caledonia Mining PLC is strong. This is the debt and cash of Caledonia Mining PLC over the past years:
It poses less risk to invest in profitable companies, especially those that have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. Caledonia Mining PLC has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of $102.1 million and earnings of $1.409 a share. Its operating margin is 38.60%, which ranks better than 91% of the companies in Metals & Mining industry. Overall, GuruFocus ranks the profitability of Caledonia Mining PLC at 8 out of 10, which indicates strong profitability. This is the revenue and net income of Caledonia Mining PLC 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 stock performance of a company. A faster growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Caledonia Mining PLC is 9.1%, which ranks better than 72% of the companies in Metals & Mining industry. The 3-year average EBITDA growth rate is 19%, which ranks in the middle range of the companies in Metals & Mining 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, Caledonia Mining PLC’s return on invested capital is 15.93, and its cost of capital is 7.11. The historical ROIC vs WACC comparison of Caledonia Mining PLC is shown below:
In summary, the stock of Caledonia Mining PLC (AMEX:CMCL, 30-year Financials) appears to be fairly valued. The company's financial condition is strong and its profitability is strong. Its growth ranks in the middle range of the companies in Metals & Mining industry. To learn more about Caledonia Mining PLC stock, you can check out its 30-year Financials here.
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