The stock of Mesabi Trust (NYSE:MSB, 30-year Financials) appears to be significantly 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 $28.6 per share and the market cap of $375.2 million, Mesabi Trust stock shows every sign of being significantly overvalued. GF Value for Mesabi Trust is shown in the chart below.
Because Mesabi Trust is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 42.9% over the past five years.
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Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. Mesabi Trust has a cash-to-debt ratio of 10000.00, which which ranks better than 100% of the companies in Steel industry. The overall financial strength of Mesabi Trust is 9 out of 10, which indicates that the financial strength of Mesabi Trust is strong. This is the debt and cash of Mesabi Trust over the past years:
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Mesabi Trust has been profitable 10 years over the past 10 years. During the past 12 months, the company had revenues of $20.6 million and earnings of $1.41 a share. Its operating margin of 92.19% better than 100% of the companies in Steel industry. Overall, GuruFocus ranks Mesabi Trust's profitability as strong. This is the revenue and net income of Mesabi Trust over the past years:
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 Mesabi Trust is 42.9%, which ranks better than 96% of the companies in Steel industry. The 3-year average EBITDA growth rate is 44.7%, which ranks better than 92% of the companies in Steel 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, Mesabi Trust's return on invested capital is 659.35, and its cost of capital is 8.15. The historical ROIC vs WACC comparison of Mesabi Trust is shown below:
Overall, the stock of Mesabi Trust (NYSE:MSB, 30-year Financials) shows every sign of being significantly overvalued. The company's financial condition is strong and its profitability is strong. Its growth ranks better than 92% of the companies in Steel industry. To learn more about Mesabi Trust stock, you can check out its 30-year Financials here.
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