With a recent daily gain of 5.66% and a three-month loss of 37.71%, Ero Copper Corp (ERO, Financial) presents an interesting case for value investors. The company's Earnings Per Share (EPS) stands at $0.85, prompting the question: Is Ero Copper significantly undervalued? This article delves into a valuation analysis to provide an answer, inviting readers to explore the following in-depth assessment.
Company Introduction
Ero Copper Corp is a prominent player in the base metals mining sector, focusing on copper production from the Vale do Curaca Property in Brazil, with gold and silver as by-products. The company's operations are segmented between MCSA, NX Gold, and corporate segments, with ore processed at the Caraiba Mill. With a market cap of $1.30 billion and sales of $427.70 million, Ero Copper's financials reflect a robust operating margin of 22.92%. When compared to the GF Value, which estimates the stock's fair value at $18.05, Ero Copper's current price of $12.32 suggests it may be significantly undervalued.
Summarize GF Value
The GF Value is a proprietary calculation that represents the intrinsic value of a stock. It is determined by considering historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line serves as a benchmark for the stock's fair trading value.
According to our valuation method, Ero Copper (ERO, Financial) is currently significantly undervalued. The GF Value estimation suggests that the stock has a higher potential for future returns when its price is below the GF Value Line, as it is now. This indicates that Ero Copper's stock, with its strong operating margin and solid Earnings Per Share (EPS), may offer an attractive investment opportunity with potential for higher long-term returns than its business growth alone might suggest.
Financial Strength
Assessing a company's financial strength is critical to avoid the risk of permanent capital loss. Ero Copper's cash-to-debt ratio of 0.41 ranks lower than most of its peers in the Metals & Mining industry, positioning it in the lower quartile compared to 2628 companies. Despite this, Ero Copper's overall financial strength score is a fair 6 out of 10, suggesting a stable financial position.
Profitability and Growth
Investing in profitable companies generally poses less risk, particularly those with a history of consistent profitability. Ero Copper has shown profitability in 5 out of the past 10 years. With an operating margin that surpasses 84.69% of its industry peers, the company's profitability is ranked as strong. Moreover, Ero Copper's average annual revenue growth of 15.3% positions it well compared to 59.09% of companies in its industry, indicating a solid growth trajectory.
ROIC vs WACC
An insightful metric for evaluating company profitability is the comparison between Return on Invested Capital (ROIC) and Weighted Average Cost of Capital (WACC). Ideally, ROIC should exceed WACC, indicating efficient cash flow generation relative to capital investment. Ero Copper's ROIC is currently at 9.64%, below its WACC of 13.02%, suggesting room for improvement in capital efficiency.
Conclusion
Overall, Ero Copper (ERO, Financial) appears to be significantly undervalued, with a fair financial condition and strong profitability. Its growth outperforms a majority of peers in the Metals & Mining industry. For a more detailed look into Ero Copper's financials, you can view its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
