Hudbay Minerals Stock Is Believed To Be Significantly Overvalued
- By GF Value
The stock of Hudbay Minerals (NYSE:HBM, 30-year Financials) is believed to be 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 $6.35 per share and the market cap of $1.7 billion, Hudbay Minerals stock shows every sign of being significantly overvalued. GF Value for Hudbay Minerals is shown in the chart below.
Because Hudbay Minerals 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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Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. Hudbay Minerals has a cash-to-debt ratio of 0.37, which which ranks worse than 81% of the companies in Metals & Mining industry. The overall financial strength of Hudbay Minerals is 3 out of 10, which indicates that the financial strength of Hudbay Minerals is poor. This is the debt and cash of Hudbay Minerals 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. Hudbay Minerals has been profitable 3 years over the past 10 years. During the past 12 months, the company had revenues of $1.1 billion and loss of $0.55 a share. Its operating margin of -3.10% in the middle range of the companies in Metals & Mining industry. Overall, GuruFocus ranks Hudbay Minerals's profitability as poor. This is the revenue and net income of Hudbay Minerals 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 Hudbay Minerals is -10%, which ranks worse than 71% of the companies in Metals & Mining industry. The 3-year average EBITDA growth is -22.8%, which ranks worse than 81% 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, Hudbay Minerals's return on invested capital is -0.68, and its cost of capital is 10.36. The historical ROIC vs WACC comparison of Hudbay Minerals is shown below:
Overall, The stock of Hudbay Minerals (NYSE:HBM, 30-year Financials) is believed to be significantly overvalued. The company's financial condition is poor and its profitability is poor. Its growth ranks worse than 81% of the companies in Metals & Mining industry. To learn more about Hudbay Minerals stock, you can check out its 30-year Financials here. To find out the high quality companies that may deliever above average returns, please check out GuruFocus High Quality Low Capex Screener. This article first appeared on GuruFocus.
