The stock of Perusahaan Rokok Tjap Gudang Garam Tbk (OTCPK:GDNGY, 30-year Financials) appears to be possible value trap, 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 $10.269 per share and the market cap of $4.9 billion, Perusahaan Rokok Tjap Gudang Garam Tbk stock appears to be possible value trap. GF Value for Perusahaan Rokok Tjap Gudang Garam Tbk is shown in the chart below.
The reason we think that Perusahaan Rokok Tjap Gudang Garam Tbk stock might be a value trap is because
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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. Perusahaan Rokok Tjap Gudang Garam Tbk has a cash-to-debt ratio of 0.78, which is in the middle range of the companies in Tobacco Products industry. The overall financial strength of Perusahaan Rokok Tjap Gudang Garam Tbk is 8 out of 10, which indicates that the financial strength of Perusahaan Rokok Tjap Gudang Garam Tbk is strong. This is the debt and cash of Perusahaan Rokok Tjap Gudang Garam Tbk 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. Perusahaan Rokok Tjap Gudang Garam Tbk has been profitable 10 years over the past 10 years. During the past 12 months, the company had revenues of $7.7 billion and earnings of $1.06 a share. Its operating margin of 8.81% in the middle range of the companies in Tobacco Products industry. Overall, GuruFocus ranks Perusahaan Rokok Tjap Gudang Garam Tbk's profitability as strong. This is the revenue and net income of Perusahaan Rokok Tjap Gudang Garam Tbk 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 Perusahaan Rokok Tjap Gudang Garam Tbk is 11.2%, which ranks better than 87% of the companies in Tobacco Products industry. The 3-year average EBITDA growth rate is -3.2%, which ranks better than 78% of the companies in Tobacco Products 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, Perusahaan Rokok Tjap Gudang Garam Tbk's ROIC is 13.23 while its WACC came in at 6.77. The historical ROIC vs WACC comparison of Perusahaan Rokok Tjap Gudang Garam Tbk is shown below:
To conclude, The stock of Perusahaan Rokok Tjap Gudang Garam Tbk (OTCPK:GDNGY, 30-year Financials) is believed to be possible value trap. The company's financial condition is strong and its profitability is strong. Its growth ranks better than 78% of the companies in Tobacco Products industry. To learn more about Perusahaan Rokok Tjap Gudang Garam Tbk stock, you can check out its 30-year Financials here.
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