The stock of Mesabi Trust (NYSE:MSB, 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 $35.6 per share and the market cap of $467.1 million, Mesabi Trust stock appears to be significantly overvalued. GF Value for Mesabi Trust is shown in the chart below.
Because Mesabi Trust is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 42.9% over the past 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. Mesabi Trust has a cash-to-debt ratio of 10000.00, which is better than 100% of the companies in Steel industry. GuruFocus ranks the overall financial strength of Mesabi Trust at 9 out of 10, which indicates that the financial strength of Mesabi Trust is strong. This is the debt and cash of Mesabi Trust over the past years:
It poses less risk to invest in profitable companies, especially those that have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. Mesabi Trust has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $25.9 million and earnings of $1.784 a share. Its operating margin is 92.19%, which ranks better than 100% of the companies in Steel industry. Overall, GuruFocus ranks the profitability of Mesabi Trust at 9 out of 10, which indicates strong profitability. This is the revenue and net income of Mesabi Trust 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 Mesabi Trust is 42.9%, which ranks better than 97% of the companies in Steel industry. The 3-year average EBITDA growth is 44.7%, which ranks better than 93% of the companies in Steel 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, Mesabi Trust's ROIC is 659.35 while its WACC came in at 8.35. The historical ROIC vs WACC comparison of Mesabi Trust is shown below:
In conclusion, the stock of Mesabi Trust (NYSE:MSB, 30-year Financials) shows every sign of being significantly overvalued. The company's financial condition is strong and its profitability is strong. Its growth ranks better than 93% of the companies in Steel industry. To learn more about Mesabi Trust stock, you can check out its 30-year Financials here.
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