The stock of Torex Gold Resources (OTCPK:TORXF, 30-year Financials) appears to be significantly 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 $14.12 per share and the market cap of $1.2 billion, Torex Gold Resources stock shows every sign of being significantly undervalued. GF Value for Torex Gold Resources is shown in the chart below.
Because Torex Gold Resources is significantly undervalued, the long-term return of its stock is likely to be much higher than its business growth, which averaged 32.6% 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. Torex Gold Resources has a cash-to-debt ratio of 36.60, which is in the middle range of the companies in Metals & Mining industry. GuruFocus ranks the overall financial strength of Torex Gold Resources at 8 out of 10, which indicates that the financial strength of Torex Gold Resources is strong. This is the debt and cash of Torex Gold Resources over the past years:
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Torex Gold Resources has been profitable 4 over the past 10 years. Over the past twelve months, the company had a revenue of $848.4 million and earnings of $2.42 a share. Its operating margin is 35.20%, which ranks better than 88% of the companies in Metals & Mining industry. Overall, the profitability of Torex Gold Resources is ranked 4 out of 10, which indicates poor profitability. This is the revenue and net income of Torex Gold Resources 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 Torex Gold Resources is 32.6%, which ranks better than 92% of the companies in Metals & Mining industry. The 3-year average EBITDA growth is 55.8%, which ranks better than 93% 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, Torex Gold Resources's return on invested capital is 23.07, and its cost of capital is 6.79. The historical ROIC vs WACC comparison of Torex Gold Resources is shown below:
In conclusion, The stock of Torex Gold Resources (OTCPK:TORXF, 30-year Financials) appears to be significantly undervalued. The company's financial condition is strong and its profitability is poor. Its growth ranks better than 93% of the companies in Metals & Mining industry. To learn more about Torex Gold Resources stock, you can check out its 30-year Financials here.
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