The stock of First Majestic Silver (NYSE: AG, 30 Financials) gives any indication that it is significantly overvalued, according to the calculation of GuruFocus Value. The GuruFocus Value is GuruFocus’s estimate of the fair value at which the stock is to trade. It is calculated based on the historical multiples at which the stock has traded, the company’s past growth, and analysts’ estimates of the company’s future performance. If a share’s price is significantly above the GF value line, it is overvalued and its future performance may be poor. On the other hand, if it is significantly below the GF value line, its future return is likely to be higher. At its current price of $ 18.05 per share and market cap of $ 4.5 billion, First Majestic Silver stock would be significantly overvalued. The GF value for First Majestic Silver is shown in the table below.
Given that First Majestic Silver is significantly overvalued, its long-term stock return is likely to be much lower than the future growth of its business, which has averaged 2.2% over the past three years and is expected to grow by 13.18% per year over the next three years. five years.
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It is always important to check the financial strength of a company before buying its shares. Investing in companies with low financial strength presents a higher risk of permanent loss. Examining the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a business. First Majestic Silver has a cash-to-debt ratio of 1.33, which is worse than 70% of companies in the metals and mining industry. The overall financial strength of First Majestic Silver is 7 out of 10, which indicates that the financial strength of First Majestic Silver is fair. Here is First Majestic Silver’s debt and cash flow over the past several years:
It is less risky to invest in profitable companies, especially those whose profitability is constant over the long term. A business with high profit margins is generally a safer investment than one with low profit margins. First Majestic Silver has been profitable 4 in the past 10 years. In the past twelve months, the company achieved sales of $ 380.8 million and earnings of $ 0.26 per share. Its operating margin is 13.94%, which ranks better than 69% of companies in the metals and mining industry. Overall, First Majestic Silver’s profitability is ranked 4 out of 10, indicating low profitability. Here is the sales and net income of First Majestic Silver over the past few years:
One of the most important factors in the valuation of a business is growth. Long-term equity performance is closely linked to growth, according to GuruFocus research. Companies that grow faster create more shareholder value, especially if that growth is profitable. The average annual revenue growth of First Majestic Silver is 2.2%, which ranks among the average for companies in the metals and mining industry. The 3-year average EBITDA growth is 138.3%, which ranks better than 100% of companies in the metals and mining industry.
Another way to look at the profitability of a business is to compare its return on invested capital and the weighted cost of capital. Return on Invested Capital (ROIC) measures how well a business 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 should pay on average to all of its security holders to finance its assets. We want to have a return on invested capital greater than the weighted cost of capital. In the past 12 months, First Majestic Silver’s return on invested capital is 5.22 and its cost of capital is 6.31. First Majestic Silver’s historical ROIC vs WACC comparison is shown below:
In conclusion, the share of First Majestic Silver (NYSE: AG, 30 years Financials) is estimated to be significantly overvalued. The financial situation of the company is fair and its profitability is poor. Its growth ranks better than 100% of companies in the metals and mining industry. To learn more about the First Majestic Silver share, you can view its 30-year financial data here.
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