Siam City Cement PCL Stock Is Believed To Be Modestly Undervalued

GuruFocus.com
·4 min read

- By GF Value

The stock of Siam City Cement PCL (BKK:SCCC, 30-year Financials) is believed to be modestly undervalued, 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 ?164 per share and the market cap of ?48.9 billion, Siam City Cement PCL stock is estimated to be modestly undervalued. GF Value for Siam City Cement PCL is shown in the chart below.


Siam City Cement PCL Stock Is Believed To Be Modestly Undervalued
Siam City Cement PCL Stock Is Believed To Be Modestly Undervalued

Because Siam City Cement PCL is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth.

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

Since investing in companies with low financial strength could result in permanent capital loss, investors must carefully review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. Siam City Cement PCL has a cash-to-debt ratio of 0.27, which ranks in the middle range of the companies in Building Materials industry. Based on this, GuruFocus ranks Siam City Cement PCL's financial strength as 5 out of 10, suggesting fair balance sheet. This is the debt and cash of Siam City Cement PCL over the past years:

Siam City Cement PCL Stock Is Believed To Be Modestly Undervalued
Siam City Cement PCL Stock Is Believed To Be Modestly Undervalued

It poses less risk to invest in profitable companies, especially those that have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. Siam City Cement PCL has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of ?42 billion and earnings of ?12.348 a share. Its operating margin is 12.95%, which ranks in the middle range of the companies in Building Materials industry. Overall, GuruFocus ranks the profitability of Siam City Cement PCL at 7 out of 10, which indicates fair profitability. This is the revenue and net income of Siam City Cement PCL over the past years:

Siam City Cement PCL Stock Is Believed To Be Modestly Undervalued
Siam City Cement PCL Stock Is Believed To Be Modestly Undervalued

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 Siam City Cement PCL is -3.8%, which ranks worse than 73% of the companies in Building Materials industry. The 3-year average EBITDA growth rate is 7.7%, which ranks in the middle range of the companies in Building Materials industry.

Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average 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. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Siam City Cement PCL's return on invested capital is 6.49, and its cost of capital is 6.43.

In conclusion, The stock of Siam City Cement PCL (BKK:SCCC, 30-year Financials) is estimated to be modestly undervalued. The company's financial condition is fair and its profitability is fair. Its growth ranks in the middle range of the companies in Building Materials industry. To learn more about Siam City Cement PCL 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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