The stock of China Coal Energy Co (OTCPK:CCOZY, 30-year Financials) gives every indication of being modestly 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 $11.04 per share and the market cap of $7.3 billion, China Coal Energy Co stock is estimated to be modestly overvalued. GF Value for China Coal Energy Co is shown in the chart below.
Because China Coal Energy Co is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth, which averaged 21.1% over the past three years and is estimated to grow 1.30% annually over the next three to 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. China Coal Energy Co has a cash-to-debt ratio of 0.42, which ranks worse than 66% of the companies in the industry of Other Energy Sources. Based on this, GuruFocus ranks China Coal Energy Co's financial strength as 4 out of 10, suggesting poor balance sheet. This is the debt and cash of China Coal Energy Co 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. China Coal Energy Co has been profitable 9 years over the past 10 years. During the past 12 months, the company had revenues of $23.5 billion and earnings of $1.977 a share. Its operating margin of 11.75% better than 70% of the companies in the industry of Other Energy Sources. Overall, GuruFocus ranks China Coal Energy Co's profitability as fair. This is the revenue and net income of China Coal Energy Co over the past years:
Growth is probably the most important factor 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. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of China Coal Energy Co is 21.1%, which ranks better than 84% of the companies in the industry of Other Energy Sources. The 3-year average EBITDA growth rate is 19%, which ranks better than 68% of the companies in the industry of Other Energy Sources.
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted 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 ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, China Coal Energy Co's ROIC was 5.42, while its WACC came in at 4.39. The historical ROIC vs WACC comparison of China Coal Energy Co is shown below:
In closing, the stock of China Coal Energy Co (OTCPK:CCOZY, 30-year Financials) appears to be modestly overvalued. The company's financial condition is poor and its profitability is fair. Its growth ranks better than 68% of the companies in the industry of Other Energy Sources. To learn more about China Coal Energy Co stock, you can check out its 30-year Financials here.
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