With a daily loss of -3.55% and a 3-month gain of 29.11%, Cameco Corp (CCJ, Financial) is a stock that has caught the attention of many investors. The company's Earnings Per Share (EPS) stands at 0.15, but the question remains: is the stock significantly overvalued? This article will provide a comprehensive valuation analysis of Cameco (CCJ), offering insights that could help investors make informed decisions.
Company Overview of Cameco Corp (CCJ, Financial)
As one of the world's largest uranium producers, Cameco Corp is a significant player in the energy sector. Its flagship McArthur River mine in Saskatchewan typically accounts for about 50% of output in normal market conditions. However, amid years of uranium price weakness, the company has reduced production, opting to purchase from the spot market to meet contracted deliveries. With a long-term strategy to increase annual uranium production by restarting shut mines and investing in new ones, Cameco Corp also operates uranium conversion and fabrication facilities.
At its current price of $39.69 per share, Cameco has a market cap of $17.20 billion. However, the GF Value, an estimation of the fair value of the stock, stands at $28.67. This disparity raises questions about the stock's valuation.
The GF Value of Cameco (CCJ, Financial)
The GF Value is a unique measure that gives an overview of the fair value at which a stock should be traded. It is calculated based on historical multiples that the stock has traded at, a GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of the 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. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
Based on the GF Value calculation, Cameco (CCJ, Financial) stock appears to be significantly overvalued. This suggests that the long-term return of its stock is likely to be much lower than its future business growth.
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Financial Strength of Cameco (CCJ, Financial)
Companies with poor financial strength pose a high risk of permanent capital loss to investors. To avoid this, it's crucial to review a company's financial strength before deciding to purchase shares. Measures like the cash-to-debt ratio and interest coverage of a company offer great insights into its financial strength. Cameco has a cash-to-debt ratio of 2.23, which ranks worse than 53.14% of 175 companies in the Other Energy Sources industry. The overall financial strength of Cameco is 7 out of 10, indicating fair financial health.
Profitability and Growth of Cameco (CCJ, Financial)
Consistent profitability over the long term reduces the risk for investors. Cameco has been profitable 6 out of the past 10 years. Over the past twelve months, the company had a revenue of $1.50 billion and Earnings Per Share (EPS) of $0.15. Its operating margin is 2.65%, which ranks worse than 72.66% of 128 companies in the Other Energy Sources industry. Overall, the profitability of Cameco is ranked 5 out of 10, indicating fair profitability.
Growth is a crucial factor in the valuation of a company. If a company's business is growing, it usually creates value for its shareholders, especially if the growth is profitable. Conversely, if a company's revenue and earnings are declining, the value of the company will decrease. Cameco's 3-year average revenue growth rate is worse than 86.55% of 119 companies in the Other Energy Sources industry. Its 3-year average EBITDA growth rate is -13.3%, which ranks worse than 86.96% of 138 companies in the Other Energy Sources industry.
ROIC vs WACC of Cameco (CCJ, Financial)
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can also evaluate a company's profitability. 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 ROIC exceeds the WACC, the company is likely creating value for its shareholders. During the past 12 months, Cameco's ROIC is 0.7 while its WACC came in at 10.87.
Conclusion
In conclusion, the stock of Cameco (CCJ, Financial) shows every sign of being significantly overvalued. The company's financial condition is fair, and its profitability is fair. However, its growth ranks worse than 86.96% of 138 companies in the Other Energy Sources industry. For more details about Cameco stock, you can check out its 30-Year Financials here.
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