The stock of Kelso Technologies (AMEX:KIQ, 30-year Financials) shows every sign of being 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 $0.8232 per share and the market cap of $45.8 million, Kelso Technologies stock is believed to be significantly overvalued. GF Value for Kelso Technologies is shown in the chart below.
Because Kelso Technologies is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 22.5% over the past five years.
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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. Kelso Technologies has a cash-to-debt ratio of 6.99, which is better than 91% of the companies in Transportation industry. The overall financial strength of Kelso Technologies is 8 out of 10, which indicates that the financial strength of Kelso Technologies is strong. This is the debt and cash of Kelso Technologies 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. Kelso Technologies has been profitable 4 years over the past 10 years. During the past 12 months, the company had revenues of $11.1 million and loss of $0.03 a share. Its operating margin of -7.61% worse than 80% of the companies in Transportation industry. Overall, GuruFocus ranks Kelso Technologies's profitability as poor. This is the revenue and net income of Kelso Technologies 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 Kelso Technologies is 22.5%, which ranks better than 93% of the companies in Transportation industry. The 3-year average EBITDA growth is 75.1%, which ranks better than 98% of the companies in Transportation 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, Kelso Technologies's return on invested capital is -11.83, and its cost of capital is 8.39. The historical ROIC vs WACC comparison of Kelso Technologies is shown below:
In conclusion, The stock of Kelso Technologies (AMEX:KIQ, 30-year Financials) is believed to be significantly overvalued. The company's financial condition is strong and its profitability is poor. Its growth ranks better than 98% of the companies in Transportation industry. To learn more about Kelso Technologies stock, you can check out its 30-year Financials here.
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