Centrus Energy Stock Gives Every Indication Of Being Significantly Overvalued

GuruFocus.com
·4 min read

- By GF Value

The stock of Centrus Energy (AMEX:LEU, 30-year Financials) shows every sign 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 $24.01 per share and the market cap of $321.3 million, Centrus Energy stock appears to be significantly overvalued. GF Value for Centrus Energy is shown in the chart below.


Centrus Energy Stock Gives Every Indication Of Being Significantly Overvalued
Centrus Energy Stock Gives Every Indication Of Being Significantly Overvalued

Because Centrus Energy is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 0.5% over the past five years.

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

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. Centrus Energy has a cash-to-debt ratio of 1.31, which which ranks in the middle range of the companies in the industry of Other Energy Sources. The overall financial strength of Centrus Energy is 5 out of 10, which indicates that the financial strength of Centrus Energy is fair. This is the debt and cash of Centrus Energy over the past years:

Centrus Energy Stock Gives Every Indication Of Being Significantly Overvalued
Centrus Energy Stock Gives Every Indication Of Being Significantly Overvalued

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. Centrus Energy has been profitable 3 years over the past 10 years. During the past 12 months, the company had revenues of $247.2 million and earnings of $0.76 a share. Its operating margin of 20.55% better than 90% of the companies in the industry of Other Energy Sources. Overall, GuruFocus ranks Centrus Energy's profitability as poor. This is the revenue and net income of Centrus Energy over the past years:

Centrus Energy Stock Gives Every Indication Of Being Significantly Overvalued
Centrus Energy Stock Gives Every Indication Of Being 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 stock performance of a company. A faster growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Centrus Energy is 0.5%, which ranks in the middle range of the companies in the industry of Other Energy Sources. The 3-year average EBITDA growth rate is 22.6%, which ranks better than 66% of the companies in the industry of Other Energy Sources.

Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted 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 ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Centrus Energy's ROIC was 14.20, while its WACC came in at 13.39. The historical ROIC vs WACC comparison of Centrus Energy is shown below:

Centrus Energy Stock Gives Every Indication Of Being Significantly Overvalued
Centrus Energy Stock Gives Every Indication Of Being Significantly Overvalued

To conclude, the stock of Centrus Energy (AMEX:LEU, 30-year Financials) is believed to be significantly overvalued. The company's financial condition is fair and its profitability is poor. Its growth ranks better than 66% of the companies in the industry of Other Energy Sources. To learn more about Centrus 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.

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