Compania Industrial El Volcan SA Stock Gives Every Indication Of Being Significantly Undervalued
- By GF Value
The stock of Compania Industrial El Volcan SA (XSGO:VOLCAN, 30-year Financials) gives every indication of being significantly 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 CLP 1900 per share and the market cap of CLP 142.5 billion, Compania Industrial El Volcan SA stock gives every indication of being significantly undervalued. GF Value for Compania Industrial El Volcan SA is shown in the chart below.
Because Compania Industrial El Volcan SA is significantly undervalued, the long-term return of its stock is likely to be much higher than its business growth, which averaged 6.2% over the past five years.
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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. Compania Industrial El Volcan SA has a cash-to-debt ratio of 1.11, which is in the middle range of the companies in Building Materials industry. The overall financial strength of Compania Industrial El Volcan SA is 6 out of 10, which indicates that the financial strength of Compania Industrial El Volcan SA is fair. This is the debt and cash of Compania Industrial El Volcan SA over the past years:
It is less risky to invest in profitable companies, especially those with consistent profitability over long term. A company with high profit margins is usually a safer investment than those with low profit margins. Compania Industrial El Volcan SA has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of CLP 119.8 billion and earnings of CLP 337.46 a share. Its operating margin is 21.59%, which ranks better than 84% of the companies in Building Materials industry. Overall, the profitability of Compania Industrial El Volcan SA is ranked 7 out of 10, which indicates fair profitability. This is the revenue and net income of Compania Industrial El Volcan SA 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 Compania Industrial El Volcan SA is 6.2%, which ranks in the middle range of the companies in Building Materials industry. The 3-year average EBITDA growth is 19%, which ranks better than 75% of the companies in Building Materials industry.
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average 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 return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, Compania Industrial El Volcan SA's ROIC is 11.23 while its WACC came in at 2.80. The historical ROIC vs WACC comparison of Compania Industrial El Volcan SA is shown below:
In conclusion, the stock of Compania Industrial El Volcan SA (XSGO:VOLCAN, 30-year Financials) gives every indication of being significantly undervalued. The company's financial condition is fair and its profitability is fair. Its growth ranks better than 75% of the companies in Building Materials industry. To learn more about Compania Industrial El Volcan SA stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.
