Yamana gold stock would be significantly overvalued
– By GF value
Yamana Gold (NYSE: AUY, 30-Year Financials) stock is reportedly significantly overvalued, according to GuruFocus’s value 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 $ 5.2 per share and market cap of $ 5 billion, Yamana Gold stock appears to be significantly overvalued. The GF value for Yamana Gold is shown in the table below.
Because Yamana Gold is significantly overvalued, its long-term stock return is likely to be much lower than its business’s future growth.
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Investing in companies with low financial strength presents a higher risk of permanent loss of capital. Thus, it is important to carefully consider the financial strength of a company before deciding whether or not to buy its shares. Examining the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a business. Yamana Gold has a cash-to-debt ratio of 0.87, which is worse than 74% of companies in the metals and mining industry. GuruFocus ranks the overall financial strength of Yamana Gold as 5 out of 10, which indicates that the financial strength of Yamana Gold is fair. Here is Yamana Gold’s debt and cash flow over the past few years:
It is less risky to invest in profitable companies, especially those that have demonstrated consistent profitability over the long term. A business with high profit margins is also generally a safer investment than a business with low profit margins. Yamana Gold has been profitable 4 in the past 10 years. In the past twelve months, the company reported sales of $ 1.6 billion and earnings of $ 0.22 per share. Its operating margin is 27.68%, which ranks better than 82% of companies in the metals and mining industry. Overall, GuruFocus ranks Yamana Gold’s profitability as 5 out of 10, which indicates fair profitability. Here is Yamana Gold’s revenue and bottom line for the past few 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. Yamana Gold’s 3-year average annual revenue growth rate is -4.8%, which ranks among the average for companies in the metals and mining industry. The 3-year average EBITDA growth rate is 65.7%, which ranks better than 97% of companies in the metals and mining sector.
Another method of determining the profitability of a business is to compare its return on invested capital to the weighted average cost of capital. 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. When the ROIC is higher than the WACC, it implies that the company creates value for the shareholders. Over the past 12 months, Yamana Gold’s return on invested capital is 2.58, and its cost of capital is 9.10.
In summary, Yamana Gold (NYSE: AUY, 30 Financials) stock appears to be significantly overvalued. The company’s financial position is fair and its profitability is fair. Its growth ranks better than 97% of companies in the metals and mining industry. To learn more about the Yamana Gold share, you can view its 30-year financial data here.
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This article first appeared on GuruFocus.