The stock of Gold Resource (AMEX:GORO, 30-year Financials) appears to be modestly undervalued, 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 $2.795 per share and the market cap of $208.1 million, Gold Resource stock gives every indication of being modestly undervalued. GF Value for Gold Resource is shown in the chart below.
Because Gold Resource is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth.
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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. Gold Resource has a cash-to-debt ratio of 10000.00, which is better than 100% of the companies in Metals & Mining industry. The overall financial strength of Gold Resource is 8 out of 10, which indicates that the financial strength of Gold Resource is strong. This is the debt and cash of Gold Resource over the past years:
It is less risky to invest in profitable companies, especially those with consistent profitability over long term. A company with high profit margins is usually a safer investment than those with low profit margins. Gold Resource has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $90.7 million and earnings of $0.049 a share. Its operating margin is -0.53%, which ranks in the middle range of the companies in Metals & Mining industry. Overall, the profitability of Gold Resource is ranked 7 out of 10, which indicates fair profitability. This is the revenue and net income of Gold Resource over the past years:
Growth is probably one of the most important factors in the valuation of a company. GuruFocus' research has found that growth is closely correlated with the long-term performance of a company's stock. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. Gold Resource's 3-year average revenue growth rate is worse than 73% of the companies in Metals & Mining industry. Gold Resource's 3-year average EBITDA growth rate is -32.1%, which ranks worse than 86% of the companies in Metals & Mining 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, Gold Resource's return on invested capital is -2.90, and its cost of capital is 13.45. The historical ROIC vs WACC comparison of Gold Resource is shown below:
In short, the stock of Gold Resource (AMEX:GORO, 30-year Financials) shows every sign of being modestly undervalued. The company's financial condition is strong and its profitability is fair. Its growth ranks worse than 86% of the companies in Metals & Mining industry. To learn more about Gold Resource stock, you can check out its 30-year Financials here.
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