The stock of Sociedad Quimica Y Minera De Chile SA (NYSE:SQM, 30-year Financials) is estimated 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 $53.82 per share and the market cap of $14.2 billion, Sociedad Quimica Y Minera De Chile SA stock appears to be significantly overvalued. GF Value for Sociedad Quimica Y Minera De Chile SA is shown in the chart below.
Because Sociedad Quimica Y Minera De Chile SA is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which is estimated to grow 5.93% annually over the next three to five years.
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Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Thus, it is important to carefully review the financial strength of a company before deciding whether to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company. Sociedad Quimica Y Minera De Chile SA has a cash-to-debt ratio of 0.44, which is in the middle range of the companies in Chemicals industry. GuruFocus ranks the overall financial strength of Sociedad Quimica Y Minera De Chile SA at 5 out of 10, which indicates that the financial strength of Sociedad Quimica Y Minera De Chile SA is fair. This is the debt and cash of Sociedad Quimica Y Minera De Chile SA over the past years:
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Sociedad Quimica Y Minera De Chile SA has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $1.8 billion and earnings of $0.621 a share. Its operating margin is 17.02%, which ranks better than 83% of the companies in Chemicals industry. Overall, the profitability of Sociedad Quimica Y Minera De Chile SA is ranked 7 out of 10, which indicates fair profitability. This is the revenue and net income of Sociedad Quimica Y Minera De Chile SA over the past years:
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Sociedad Quimica Y Minera De Chile SA is -0.1%, which ranks worse than 66% of the companies in Chemicals industry. The 3-year average EBITDA growth is -15.7%, which ranks worse than 84% of the companies in Chemicals industry.
Another way to look at the profitability of a company is to compare its return on invested capital and the weighted 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. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, Sociedad Quimica Y Minera De Chile SA's return on invested capital is 6.40, and its cost of capital is 6.72. The historical ROIC vs WACC comparison of Sociedad Quimica Y Minera De Chile SA is shown below:
In conclusion, the stock of Sociedad Quimica Y Minera De Chile SA (NYSE:SQM, 30-year Financials) gives every indication of being significantly overvalued. The company's financial condition is fair and its profitability is fair. Its growth ranks worse than 84% of the companies in Chemicals industry. To learn more about Sociedad Quimica Y Minera De Chile SA stock, you can check out its 30-year Financials here.
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