The stock of Industrias Penoles SAB de CV (OTCPK:IPOAF, 30-year Financials) gives every indication of being fairly valued, 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 $13.92 per share and the market cap of $5.5 billion, Industrias Penoles SAB de CV stock is estimated to be fairly valued. GF Value for Industrias Penoles SAB de CV is shown in the chart below.
Because Industrias Penoles SAB de CV is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which averaged 1.7% over the past five years.
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Since investing in companies with low financial strength could result in permanent capital loss, investors must carefully review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. Industrias Penoles SAB de CV has a cash-to-debt ratio of 0.36, which ranks worse than 82% of the companies in Metals & Mining industry. Based on this, GuruFocus ranks Industrias Penoles SAB de CV's financial strength as 5 out of 10, suggesting fair balance sheet. This is the debt and cash of Industrias Penoles SAB de CV 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. Industrias Penoles SAB de CV has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of $4.3 billion and loss of $0.81 a share. Its operating margin is 10.50%, which ranks better than 68% of the companies in Metals & Mining industry. Overall, the profitability of Industrias Penoles SAB de CV is ranked 7 out of 10, which indicates fair profitability. This is the revenue and net income of Industrias Penoles SAB de CV 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. Industrias Penoles SAB de CV's 3-year average revenue growth rate is in the middle range of the companies in Metals & Mining industry. Industrias Penoles SAB de CV's 3-year average EBITDA growth rate is -14.4%, which ranks worse than 75% of the companies in Metals & Mining 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, Industrias Penoles SAB de CV's return on invested capital is -133.70, and its cost of capital is 9.02. The historical ROIC vs WACC comparison of Industrias Penoles SAB de CV is shown below:
In short, Industrias Penoles SAB de CV (OTCPK:IPOAF, 30-year Financials) stock appears to be fairly valued. The company's financial condition is fair and its profitability is fair. Its growth ranks worse than 75% of the companies in Metals & Mining industry. To learn more about Industrias Penoles SAB de CV stock, you can check out its 30-year Financials here.
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