Ero Copper Corp (ERO, Financial) has experienced a notable daily gain of 10.56%, yet over the last three months, the stock has seen a decline of 11.83%. With an Earnings Per Share (EPS) of $0.85, investors are contemplating whether Ero Copper (ERO) is trading at a fair valuation. This article explores the intrinsic value of Ero Copper (ERO) and provides a detailed analysis to answer the pressing question: Is the stock fairly valued?
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 into MCSA, NX Gold, and corporate divisions. Utilizing conventional crushing and flotation at the Caraiba Mill, Ero Copper processes ore from the Pilar underground mine. With a market cap of $1.70 billion and a current share price of $16.33, juxtaposed against a GF Value of $17.87, a closer look at Ero Copper's valuation is warranted to assess its investment potential.
Summarize GF Value
The GF Value is a bespoke metric that gauges the intrinsic worth of a stock, derived from a unique methodology. It is predicated on historical trading multiples, a GuruFocus adjustment factor that reflects the company's past returns and growth, and projections of future business performance. When the stock price significantly deviates from the GF Value Line, it suggests a potential misalignment with its fair value, signaling either an overvalued or undervalued status.
As per GuruFocus' valuation method, Ero Copper (ERO, Financial) is currently fairly valued. The GF Value estimates the stock's fair value by considering historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. Given Ero Copper's market cap of $1.70 billion and its current price of $16.33 per share, the stock seems to align with its estimated fair value.
Because Ero Copper is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth.
Financial Strength
Investing in companies with robust financial strength mitigates the risk of permanent capital loss. Analyzing the cash-to-debt ratio and interest coverage offers insights into a company's financial robustness. Ero Copper's cash-to-debt ratio stands at 0.41, which is lower than 78.75% of companies in the Metals & Mining industry. With a financial strength ranking of 6 out of 10 by GuruFocus, Ero Copper's financial health is deemed fair.
Profitability and Growth
Investing in profitable companies, particularly those with a history of consistent profitability, is generally less risky. Companies with high profit margins are usually safer investments than those with low margins. Ero Copper has been profitable 5 years out of the past decade. In the last twelve months, the company reported a revenue of $427.70 million and an Earnings Per Share (EPS) of $0.85. With an operating margin of 22.92%, which ranks better than 84.54% of its industry peers, Ero Copper's profitability is strong, earning a GuruFocus profitability rank of 8 out of 10.
Growth is a pivotal factor in a company's valuation. Ero Copper's 3-year average annual revenue growth rate is 15.3%, outpacing 58.98% of companies in the Metals & Mining industry. Its 3-year average EBITDA growth rate is 16.8%, ranking above 59.71% of companies in the same sector.
ROIC vs WACC
Comparing a company's Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC) is a measure of profitability and value creation. Ero Copper's ROIC over the past 12 months is 9.64, while its WACC is 11.55, suggesting that the company may not be creating value for shareholders as effectively as possible.
Conclusion
Overall, Ero Copper (ERO, Financial) stock appears to be fairly valued. The company's financial condition is fair, and its profitability is strong. Its growth ranks favorably within the Metals & Mining industry. For a more detailed understanding of Ero Copper's financial health, interested parties can review the company's 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.
