Alamos Gold Stock Is Believed To Be Modestly Overvalued
- By GF Value
The stock of Alamos Gold (NYSE:AGI, 30-year Financials) gives every indication of being modestly 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 $8.95 per share and the market cap of $3.5 billion, Alamos Gold stock appears to be modestly overvalued. GF Value for Alamos Gold is shown in the chart below.
Because Alamos Gold is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth, which averaged 2.7% over the past three years and is estimated to grow 3.91% annually over the next three to 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. Alamos Gold has a cash-to-debt ratio of 10000.00, which is better than 100% of the companies in Metals & Mining industry. The overall financial strength of Alamos Gold is 9 out of 10, which indicates that the financial strength of Alamos Gold is strong. This is the debt and cash of Alamos Gold 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. Alamos Gold has been profitable 6 over the past 10 years. Over the past twelve months, the company had a revenue of $798.6 million and earnings of $0.53 a share. Its operating margin is 32.13%, which ranks better than 86% of the companies in Metals & Mining industry. Overall, the profitability of Alamos Gold is ranked 5 out of 10, which indicates fair profitability. This is the revenue and net income of Alamos Gold over the past years:
Growth is probably one of the most important factors 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. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. Alamos Gold's 3-year average revenue growth rate is in the middle range of the companies in Metals & Mining industry. Alamos Gold's 3-year average EBITDA growth rate is 24.2%, which ranks better than 66% of the companies in Metals & Mining industry.
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, Alamos Gold's ROIC was 6.45, while its WACC came in at 8.26. The historical ROIC vs WACC comparison of Alamos Gold is shown below:
In short, The stock of Alamos Gold (NYSE:AGI, 30-year Financials) is estimated to be modestly overvalued. The company's financial condition is strong and its profitability is fair. Its growth ranks better than 66% of the companies in Metals & Mining industry. To learn more about Alamos Gold stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.
