Kirkland Lake gold stock shows all signs of modest undervaluation
– By GF value
Kirkland Lake Gold (NYSE: KL, 30 Financials) stock appears to be slightly undervalued, according to GuruFocus Value’s calculation. The GuruFocus Value is GuruFocus’ estimate of the fair value at which the stock is to trade. It is calculated based on the historical multiples at which the stock has traded, past business growth, and analysts’ estimates of future business performance. If a share’s price is significantly above the GF value line, it is overvalued and its future performance may be poor. On the other hand, if it is significantly below the GF value line, its future return is likely to be higher. At its current price of $ 42.83 per share and market cap of $ 11.5 billion, Kirkland Lake Gold stock appears to be slightly undervalued. The GF value for Kirkland Lake Gold is shown in the graph below.
Given that Kirkland Lake Gold is relatively undervalued, its long-term stock return is likely to exceed its business growth, which has averaged 36.5% over the past three years and is expected to grow by 0.06% per year over the next three to five years. .
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Since investing in companies with poor financial strength could result in a permanent loss of capital, investors should carefully consider the financial strength of a company before deciding whether or not to buy shares. Examining the cash-to-debt ratio and interest coverage can provide a good initial perspective on the financial strength of the business. Kirkland Lake Gold has a cash-to-debt ratio of 30.35, which ranks among the average for companies in the metals and mining industry. Based on this, GuruFocus ranks Kirkland Lake Gold’s financial strength as 8 out of 10, which suggests a strong balance sheet. Here is Kirkland Lake Gold’s debt and cash flow over the past several years:
It is less risky to invest in profitable companies, especially those whose profitability is constant over the long term. A business with high profit margins is generally a safer investment than one with low profit margins. Kirkland Lake Gold has been profitable 8 in the past 10 years. In the past twelve months, the company reported sales of $ 2.5 billion and earnings of $ 2.71 per share. Its operating margin is 50.64%, which ranks better than 96% of companies in the metals and mining industry. Overall, Kirkland Lake Gold’s profitability is ranked 8 out of 10, indicating strong profitability. Here is Kirkland Lake Gold’s sales and net income for the past several years:
Growth is probably the most important factor in the valuation of a business. GuruFocus research has shown that growth is closely tied to the long-term performance of a company’s stocks. The faster a company grows, the more likely it is to create shareholder value, especially if the growth is profitable. Kirkland Lake Gold’s 3-year average annual revenue growth rate is 36.5%, which is better than 93% of companies in the metals and mining industry. The 3-year average EBITDA growth rate is 49.6%, which ranks better than 90% of companies in the metals and mining sector.
A company’s profitability can also be assessed 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 business 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 should pay on average 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 to create value for its shareholders. Over the past 12 months, Kirkland Lake Gold’s ROIC is 14.37 while its WACC is 5.55. The historical comparison of ROIC to Kirkland Lake Gold’s WACC is shown below:
In summary, the stock of Kirkland Lake Gold (NYSE: KL, 30-year financials) gives all indications of a modest undervaluation. The company’s financial position is solid and its profitability is solid. Its growth ranks better than 90% of companies in the metals and mining industry. To learn more about Kirkland Lake Gold stock, you can view its 30-year financial data here.
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This article first appeared on GuruFocus.