Grupo Simec SAB de CV (SIM, Financial) recently saw a daily gain of 17.71%, with a 3-month gain of 6.06%. With an Earnings Per Share (EPS) of 1.21, the question arises - is the stock significantly overvalued? This article aims to answer this question through an in-depth valuation analysis. We encourage our readers to delve into the following sections for a comprehensive understanding of Grupo Simec SAB de CV's true worth.
Company Introduction
Grupo Simec SAB de CV (SIM, Financial) is a diversified manufacturer, processor, and distributor of special bar quality (SBQ) steel and structural steel products. The United States, Brazil, and Mexico are the company's major markets. SBQ products are used in a variety of engineered end-user applications, including axles, hubs, and crankshafts for automobiles and light trucks, machine tools, and off-highway equipment. The company's structural steel products are primarily used in non-residential construction and other construction applications.
Currently, the stock of Grupo Simec SAB de CV (SIM, Financial) is trading at $33.43 per share, with a market cap of $5.10 billion. However, the GF Value, an estimation of the fair value of the stock, is $23.61. This discrepancy suggests that the stock may be significantly overvalued.
Understanding GF Value
The GF Value is a proprietary measure that reflects the current intrinsic value of a stock, calculated based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line provides an overview of the fair value at which the stock should ideally be traded.
According to our evaluation, Grupo Simec SAB de CV's stock appears to be significantly overvalued. If the stock's price is significantly above the GF Value Line, it indicates overvaluation and potential poor future returns. Conversely, if the stock's price is significantly below the GF Value Line, the stock may be undervalued, suggesting potentially high future returns.
As Grupo Simec SAB de CV is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth.
Financial Strength
Before investing in a company, it's crucial to assess its financial strength. Investing in companies with poor financial strength poses a higher risk of permanent loss. The cash-to-debt ratio and interest coverage can provide valuable insights into a company's financial strength.
Grupo Simec SAB de CV boasts a cash-to-debt ratio of 4418.24, ranking better than 92.8% of 597 companies in the Steel industry. With an overall financial strength score of 10 out of 10, Grupo Simec SAB de CV demonstrates strong financial health.
Profitability and Growth
Investing in profitable companies, especially those that have demonstrated consistent profitability over the long term, usually poses less risk. A company with high profit margins is also typically a safer investment than one with low profit margins. Grupo Simec SAB de CV has been profitable 8 over the past 10 years, with a revenue of $2.30 billion and an Earnings Per Share (EPS) of $1.21 over the past twelve months. Its operating margin is 20.48%, ranking better than 93.57% of 607 companies in the Steel industry. Overall, GuruFocus ranks the profitability of Grupo Simec SAB de CV at 8 out of 10, indicating strong profitability.
Growth is a crucial factor in the valuation of a company. Grupo Simec SAB de CV's 3-year average revenue growth rate is better than 69.88% of 591 companies in the Steel industry. Grupo Simec SAB de CV's 3-year average EBITDA growth rate is 64.2%, ranking better than 86.87% of 518 companies in the Steel industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted cost of capital (WACC) is another way to evaluate its 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 is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Grupo Simec SAB de CV's ROIC was 14.2, while its WACC came in at 11.06.
Conclusion
In summary, the stock of Grupo Simec SAB de CV (SIM, Financial) appears to be significantly overvalued. The company's financial condition is strong, and its profitability is robust. Its growth ranks better than 86.87% of 518 companies in the Steel industry. To learn more about Grupo Simec SAB de CV stock, you can check out its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
