Golden Minerals Co Stock Appears To Be Significantly Overvalued

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Jul 07, 2021
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The stock of Golden Minerals Co (AMEX:AUMN, 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 $0.6214 per share and the market cap of $101 million, Golden Minerals Co stock is believed to be significantly overvalued. GF Value for Golden Minerals Co is shown in the chart below.

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Because Golden Minerals Co is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth.

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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. Golden Minerals Co has a cash-to-debt ratio of 23.91, which ranks in the middle range of the companies in Metals & Mining industry. Based on this, GuruFocus ranks Golden Minerals Co’s financial strength as 5 out of 10, suggesting fair balance sheet. This is the debt and cash of Golden Minerals Co 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. Golden Minerals Co has been profitable 0 years over the past 10 years. During the past 12 months, the company had revenues of $6.2 million and loss of $0.064 a share. Its operating margin of -131.73% worse than 82% of the companies in Metals & Mining industry. Overall, GuruFocus ranks Golden Minerals Co’s profitability as poor. This is the revenue and net income of Golden Minerals Co over the past years:

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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 Golden Minerals Co is -16.6%, which ranks worse than 76% of the companies in Metals & Mining industry. The 3-year average EBITDA growth is -58.7%, which ranks in the bottom 10% of the companies in Metals & Mining industry.

One can also evaluate a company’s profitability by comparing its return on invested capital (ROIC) to its weighted average 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 return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, Golden Minerals Co’s ROIC is -91.32 while its WACC came in at 8.93. The historical ROIC vs WACC comparison of Golden Minerals Co is shown below:

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To conclude, the stock of Golden Minerals Co (AMEX:AUMN, 30-year Financials) appears to be significantly overvalued. The company's financial condition is fair and its profitability is poor. Its growth ranks in the bottom 10% of the companies in Metals & Mining industry. To learn more about Golden Minerals Co stock, you can check out its 30-year Financials here.

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