With a daily gain of 4.53%, a 3-month gain of 3.13%, and a Loss Per Share of 0.13, Hudbay Minerals Inc (HBM, Financial) appears to be an intriguing prospect for value investors. The question, however, is whether the stock is modestly undervalued? To answer this, we delve into a comprehensive analysis of the company's valuation, financial strength, and growth potential. Read on to gain valuable insights into Hudbay Minerals' true market value.
Company Introduction
Hudbay Minerals Inc is a Canadian mining company with its operations, property developments, and exploration activities spread across the United States. The company primarily focuses on the discovery, production, and marketing of base and precious metals. The majority of Hudbay's revenue is attributable to its copper business, with copper concentrates sold to smelters across Asia, America, and Europe. The company also sells zinc metal, its next biggest source of revenue, to industrial customers across North America.
Currently, Hudbay Minerals (HBM, Financial) is trading at $4.85 per share, with a market cap of $1.70 billion. However, the GF Value, an estimation of fair value, is $6.12. This discrepancy paves the way for a deeper exploration of the company's value.
Understanding the GF Value
The GF Value represents the current intrinsic value of a stock, derived from our exclusive method. The GF Value Line provides an overview of the fair value at which the stock should ideally be traded. It is calculated based on three factors:
- Historical multiples (PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow) at which the stock has traded.
- A GuruFocus adjustment factor based on the company's past returns and growth.
- Future estimates of the business performance.
According to our valuation method, Hudbay Minerals (HBM, Financial) appears to be modestly undervalued. The stock's fair value is estimated based on historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. If the stock's share price is significantly above the GF Value Line, the stock may be overvalued and have poor future returns. Conversely, if the stock's share price is significantly below the GF Value Line, the stock may be undervalued and have high future returns.
Because Hudbay Minerals is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth. Check out these companies that may deliver higher future returns at reduced risk.
Assessing Financial Strength
Investing in companies with poor financial strength carries a higher risk of permanent loss of capital. Therefore, it's crucial to carefully review a company's financial strength before deciding to buy its stock. A good starting point for understanding a company's financial strength is to look at its cash-to-debt ratio and interest coverage. Hudbay Minerals has a cash-to-debt ratio of 0.12, which is worse than 90.29% of 2594 companies in the Metals & Mining industry. GuruFocus ranks the overall financial strength of Hudbay Minerals at 5 out of 10, indicating that the company's financial strength is fair.
Evaluating Profitability and Growth
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. Hudbay Minerals has been profitable 4 years over the past 10 years. During the past 12 months, the company had revenues of $1.30 billion and a Loss Per Share of $0.13. Its operating margin of 19.48% is better than 81.26% of 843 companies in the Metals & Mining industry. Overall, GuruFocus ranks Hudbay Minerals's profitability as fair.
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. Conversely, if a company's revenue and earnings are declining, the value of the company will decrease. Hudbay Minerals's 3-year average revenue growth rate is worse than 62.46% of 602 companies in the Metals & Mining industry. Hudbay Minerals's 3-year average EBITDA growth rate is 0%, which ranks worse than 0% of 1853 companies in the Metals & Mining industry.
ROIC Vs. WACC
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, Hudbay Minerals's return on invested capital is 7.59, and its cost of capital is 12.24.
Conclusion
In summary, the stock of Hudbay Minerals (HBM, Financial) gives every indication of being modestly undervalued. The company's financial condition and profitability are fair, but its growth ranks worse than 0% of 1853 companies in the Metals & Mining industry. To learn more about Hudbay Minerals stock, you can check out its 30-Year Financials here.
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