Daqo New Energy Stock Is Believed To Be Significantly Overvalued

GuruFocus.com
·4 min read

- By GF Value

The stock of Daqo New Energy (NYSE:DQ, 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 $70.34 per share and the market cap of $4.9 billion, Daqo New Energy stock is estimated to be significantly overvalued. GF Value for Daqo New Energy is shown in the chart below.


Daqo New Energy Stock Is Believed To Be Significantly Overvalued
Daqo New Energy Stock Is Believed To Be Significantly Overvalued

Because Daqo New Energy is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 10.5% over the past five years.

Link: These companies may deliever higher future returns at reduced risk.

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. Daqo New Energy has a cash-to-debt ratio of 0.21, which is worse than 89% of the companies in Semiconductors industry. The overall financial strength of Daqo New Energy is 6 out of 10, which indicates that the financial strength of Daqo New Energy is fair. This is the debt and cash of Daqo New Energy over the past years:

Daqo New Energy Stock Is Believed To Be Significantly Overvalued
Daqo New Energy Stock Is Believed To Be Significantly Overvalued

Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Daqo New Energy has been profitable 8 over the past 10 years. Over the past twelve months, the company had a revenue of $546.8 million and earnings of $1.036 a share. Its operating margin is 21.94%, which ranks better than 86% of the companies in Semiconductors industry. Overall, the profitability of Daqo New Energy is ranked 7 out of 10, which indicates fair profitability. This is the revenue and net income of Daqo New Energy over the past years:

Daqo New Energy Stock Is Believed To Be Significantly Overvalued
Daqo New Energy Stock Is Believed To Be Significantly Overvalued

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 performance of a company's stock. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Daqo New Energy is 10.5%, which ranks better than 69% of the companies in Semiconductors industry. The 3-year average EBITDA growth rate is -4.8%, which ranks worse than 72% of the companies in Semiconductors 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, Daqo New Energy's return on invested capital is 7.87, and its cost of capital is 6.21. The historical ROIC vs WACC comparison of Daqo New Energy is shown below:

Daqo New Energy Stock Is Believed To Be Significantly Overvalued
Daqo New Energy Stock Is Believed To Be Significantly Overvalued

In summary, the stock of Daqo New Energy (NYSE:DQ, 30-year Financials) shows every sign of being significantly overvalued. The company's financial condition is fair and its profitability is fair. Its growth ranks worse than 72% of the companies in Semiconductors industry. To learn more about Daqo New Energy 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.

Recommended Stories

  • Birx reveals she received a 'very uncomfortable' phone call from Trump after giving interview warning of severity of pandemic

    Of all the doctors CNN's chief medical correspondent Sanjay Gupta interviewed for the network's upcoming documentary COVID War: The Pandemic Doctors Speak Out, which will air Sunday at 9 p.m. ET, Dr. Deborah Birx, the former White House coronavirus response coordinator, was "perhaps the most" introspective, he said. In one of the clips CNN has shared ahead of the airing, for example, Birx said she believes the majority of coronavirus deaths after the initial surge in the United States could have been prevented. In another excerpt, discussed by Gupta and Dana Bash on Sunday's edition of State of the Union, Birx tells Gupta that she knew she was "being watched" during her time in the Trump administration, noting that everyone "was waiting for me to make a mistake." She revealed that an interview she did with Bash over the summer, in which she warned about the severity of the virus, even in seemingly isolated regions of the U.S., particularly angered former President Donald Trump and his team. "I got called by the president," Birx said, adding that the conversation was "very uncomfortable, very direct, and very difficult to hear." Gupta then asked Birx if she was "threatened," to which she replied only that "it was a very uncomfortable conversation." “I knew I was being watched. Everybody inside was waiting for me to make a misstep so that they could, I guess, remove me from the task force,” says Dr. Deborah Birx, the White House coronavirus response coordinator under fmr. Pres. Trump, on the pressures she faced. #CNNSOTU pic.twitter.com/5zmR0P3SbN — State of the Union (@CNNSotu) March 28, 2021 More stories from theweek.com5 cartoons about Biden’s immigration troublesWhy conservatives should hate Georgia's voting restrictionsThe Republican surrender to gun violence

  • GOP Rep. Adam Kinzinger calls Trump 'an utter failure' after the former president said that the Capitol rioters posed 'zero threat'

    Kinzinger has been one of the most prominent Republican critics of former President Donald Trump's outsized influence over the direction of the party.

  • India holds nerve to beat England, wins ODI series 2-1

    India held its nerve in the final over to win the third and final one-day international by seven runs against England and clinch the series 2-1 on Sunday. Sam Curran, batting at No. 8, hit an unbeaten 95 off 83 balls which threatened to snatch a dramatic victory for England. Needing 14 runs off Thangarasu Natarajan’s last over, England finished on 322-9 in reply to India’s 329 all out in 48.2 overs.

  • After a stray dog stole a unicorn toy from a store five times, animal control bought it for him

    Sisu, a one-year-old stray dog, was adopted the next day after the Duplin County Animal Control in North Carolina posted about his criminal behavior.

  • Pope, on Palm Sunday, says devil taking advantage of pandemic

    Pope Francis led Palm Sunday services in an almost empty St. Peter's Basilica because of coronavirus restrictions for the second consecutive year and said the devil is taking advantage of the pandemic. In pre-coronavirus times, Palm Sunday, which marks the start of Holy Week and leads to Easter, tens of thousands of people would pack St. Peter's Square holding olive branches and intricately woven palm fronds in an outdoor ceremony. "The Devil is taking advantage of the crisis to sow distrust, desperation and discord," he said, adding that the pandemic had brought physical, psychological and spiritual suffering.

  • A Republican strategist says GOP voting reform bills are about 'providing cotton candy' to the Trump-obsessed wing of the party

    Cárdenas said these proposals are "all about providing cotton candy to the far-right base that believed the Donald Trump big lie about the election."

  • Mexico's real COVID-19 death toll now stands at over 321,000

    Mexico’s government acknowledged Saturday that the country's true death toll from the coronavirus pandemic now stands above 321,000, almost 60% more than the official test-confirmed number of 201,429. Mexico does little testing, and because hospitals were overwhelmed, many Mexicans died at home without getting a test. The only way to get a clear picture is to review “excess deaths” and review death certificates.

  • Kamala Harris is reportedly 'bothered' that she hasn't been able to move into her official Washington DC residence over two months after inauguration

    An administration official told CNN that it is "unclear" why the renovations are still ongoing, but Harris is reportedly "bothered" by the delay.

  • 'It doesn't end here': Hundreds gather for AAPI support caravan, rally

    Hundreds of people gathered in the south Sacramento area Saturday for a caravan and rally in support of the #StopAsianHate movement. They drove cars decked out with signs and paint — displaying messages of support for the Asian American and Pacific Islander community — along several blocks of streets and eventually arrived at Florin Town Centre for a rally. The united message among all in attendance was, quite simply, "stop the hate." See more above.

  • Bangladesh violence spreads after Modi's visit, attacks on Hindu temples, train

    COX'S BAZAR (Reuters) - Hundreds of members of a hardline Islamist group attacked Hindu temples and a train in eastern Bangladesh on Sunday, police and a local journalist said, as violence spread across the country in the wake of a visit by Indian Prime Minister Narendra Modi. Local police and doctors have said at least 11 protesters have been killed since Friday in clashes with police during demonstrations organised by Islamist groups against the Indian leader's visit. Violence has raged on since Modi's departure as anger has swelled over the deaths.

  • Demi Lovato says getting engaged to Max Ehrich was an attempt to 'prove to the world' she was OK

    In a new interview with Entertainment Weekly, the singer spoke about her previous relationship with the actor, who she was engaged to for two months.

  • ‘Is this patriot enough?’ Asian American war vet and public official takes shirt off to show scars in powerful town hall speech about discrimination

    Official said voters told him he “did not look American enough” while he was campaigning

  • Attorney for Georgia lawmaker calls charges 'overreach'

    An attorney for a Georgia lawmaker who was charged with two felonies after knocking on the door to the governor’s private office said authorities overreached in the case, which unfolded while the governor spoke on live television about a sweeping overhaul of state elections. State police arrested state Rep. Park Cannon, an Atlanta Democrat, on Thursday after she said she wanted to see Republican Gov. Brian Kemp sign the law that places new restrictions on voting by mail and gives lawmakers more power to oversee elections. Cannon was charged with obstruction of law enforcement and disruption of the General Assembly.

  • ‘The only threat you face is unarmed children’: Beto O’Rourke mocks Ted Cruz’s claim border smugglers heckled him

    O’Rourke listed problems Texans face that Cruz could address instead of posting videos from border

  • North Korea's Arsenal Has Grown Rapidly. Here's What's in It.

    SEOUL, South Korea — North Korea test-launched what it called a newly developed tactical guided missile ​Thursday, violating international sanctions. It was the country’s first ballistic missile test in a year and its first provocation to the Biden administration, prompting President Joe Biden to warn that there will be “responses” if North Korea continues to escalate tensions on the Korean Peninsula. A senior North Korean official, Ri Pyong Chol, replied defiantly Saturday, warning that if the United States keeps making “thoughtless remarks without thinking of the consequences, it may be faced with something that is not good.” Sign up for The Morning newsletter from the New York Times The United States has tried both sanctions and dialogue to persuade North Korea to ​give up its ​nuclear ​weapons programs. Neither has worked. Instead, North Korea​ has rapidly expanded its nuclear program and modernized its missile fleet under Kim Jong Un, the country’s young leader. The expansion of the arsenal is a growing threat to the United States and allies​ in the region. ​Here’s what’s in it. There are nuclear warheads and more. North Korea’s ballistic missiles can carry nuclear warheads, and the country conducted six increasingly sophisticated underground nuclear tests between 2006 and 2017. The last four of them happened under Kim. Its last and most powerful nuclear test was conducted in September 2017, when North Korea claimed to have detonated ​a thermonuclear​, or hydrogen, bomb. ​Estimates of the device’s explosive power ranged from 50 to 300 kilotons. A mere 100 kilotons would make the test six times as powerful as the bomb dropped on Hiroshima in 1945.​ North Korea has extracted plutonium, an atomic bomb fuel, from its Soviet-designed nuclear reactor in Yongbyon, north of Pyongyang. It also runs centrifuges to produce weapons-grade enriched uranium, another bomb fuel. As of January 2020, North Korea had 30 to 40 nuclear warheads and could produce enough fissile material for six or seven bombs a year, according to an estimate by the Arms Control Association. Although the world is preoccupied with the North’s nuclear weapons, the country has also stockpiled thousands of tons of chemical and biological​ weapons​ ​agents​ that it can deliver with its missiles​​. When Kim’s estranged half brother, Kim Jong Nam, was assassinated in Kuala Lumpur in 2017, North Korea ​used the internationally banned VX nerve agent in the operation. ​Its missiles can fly longer ranges. In 2017, North Korea made big strides in its weapons capabilities. That year, the country fired its intermediate-range ballistic missile, Hwasong-12, over Japan and threatened an “enveloping” strike around the U.S. territory of Guam. It also test-fired Hwasong-14 and Hwasong-15, the country’s first intercontinental ballistic missiles. By the end of the year, Kim claimed that his country had the ability to launch a nuclear strike against the continental United States. After 2017, Kim stopped testing nuclear weapons and long-range missiles, but threatened to end his moratorium when talks with President Donald Trump collapsed in 2019. During a nighttime military parade last October, North Korea displayed a new, untested ICBM that looked bigger than any of the previous ones. And at a party congress in January, Kim doubled down on his nuclear arms buildup, offering a laundry list of weapons he said he planned to develop. They included “multi-warhead” nuclear missiles, “hypersonic” missiles, land- and submarine-launched ICBMs that use solid fuel, and “ultramodern tactical nuclear weapons.” Whether North Korea has mastered the technology needed to send an intercontinental nuclear warhead into space and then guide it back through the earth’s atmosphere to its target is still unclear. North Korea has yet to demonstrate that its warhead can survive the intense heat and friction created by reentry. Its weapons are getting more sophisticated. When North Korea resumed missile tests in 2019 following the collapse of the Kim-Trump talks, the tests featured three new weapons, code-named KN-23, KN-24 and KN-25 by outside experts. They each marked big advances in North Korea’s short-range ballistic missile program. Unlike its older missiles that used liquid fuel, all three of the new missiles used solid fuel. The new solid-fuel weapons, mounted on mobile launchers, are easier to transport and hide and take less time to prepare. And at least two of them, KN-23 and KN-24, could perform low-altitude maneuvers, making them harder to intercept. At a military parade earlier this year, North Korea displayed what looked like a bigger, upgraded version of KN-23. Photos released by the North Korean media indicate that was the weapon tested Thursday. The new missile was developed to be larger than KN-23 in order to carry a bigger warhead and more fuel. Kim said in January that his country would also build a nuclear-powered submarine in order to acquire the means to deliver nuclear weapons to its adversaries more stealthily. North Korea has been testing its Pukguksong submarine-launched ballistic missiles since 2015. During the military parades held in October and earlier this year, North Korea displayed what looked like two upgraded versions of its Pukguksong submarine-launched ballistic missiles. The country currently has only one submarine that can launch a ballistic missile, but says it is building a new one with greater capabilities. The arsenal ‘guarantees its success.’ North Korea has one of the largest standing armies in the world, with more than 1 million soldiers. But much of its equipment is old and obsolete, and the military lacks fuel and spare parts. North Korea has sought to make up for its shortcomings by building nuclear weapons. Kim justifies his family’s dynastic rule of North Korea by saying that the nuclear arsenal his government has built was a “treasure sword” keeping North Koreans safe from foreign invasion. He tells his people that they are under the constant threat of a U.S. attack. At the January party congress, Kim said that his weapons program “never precludes diplomacy” but “guarantees its success.” He has also said he no longer holds any expectations for dialogue unless Washington makes an offer that satisfies his government. The test this week reflected Kim’s determination, analysts said. It showed that “North Korea was pushing ahead with the plans” set down by Kim during the party meeting, said Kim Dong-yub, a professor at the University of North Korean Studies in Seoul. “As it had stated before, North Korea had no intention of moving first to offer a concession or make a proposal.” This article originally appeared in The New York Times. © 2021 The New York Times Company

  • Egypt's president orders preparations be made to unload Ever Given's cargo if refloating fails, a high risk strategy adding days of delay

    The giant Ever Given ship has a cargo of 20,000 container boxes. Helicopters would most likely need to be used to lighten the load.

  • Piers Morgan defends Sharon Osbourne and rallies against her 'outrageous' dismissal from 'The Talk'

    Sharon Osbourne left "The Talk" after a heated on-air exchange with co-host Sheryl Underwood when she defended Piers Morgan over Meghan Markle.

  • The Catholic church silently lobbied against a suicide prevention hotline in the US because it included LGBT resources

    The US Conference of Catholic Bishops opposed the creation of the National Suicide Hotline because it provided resources for queer and trans people.

  • UK protesters scuffle with police during rally over new law

    Police in the English city of Bristol say they arrested 10 people during a third night of protest against a new policing law. Hundreds of demonstrators against the Police, Crime, Sentencing and Courts Bill staged a sit-down protest outside a police station in the southwest England city on Friday night, and some scuffled with officers in helmets and shields who tried to break up the gathering. The Avon and Somerset Police force said Saturday that eggs, bottles and bricks were thrown at officers and a police horse was daubed with paint.

  • Halle Berry calls out 'disgusting' racist comments made by a New York radio host who compared her skin to toast

    The radio segment on Buffalo's 97 Rock mentioned Halle Barry alongside other Black women, including Serena Williams and Gayle King.