The stock of Pan American Silver (NAS: PAAS, 30 Years Financials) is estimated to be significantly overvalued, according to the GuruFocus value calculation. 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 $ 33.12 per share and a market cap of $ 7 billion, Pan American Silver stock is showing all signs of significant overvaluation. The GF value for Pan American silver is shown in the table below.
Given that Pan American Silver is significantly overvalued, the long-term return on its stock is likely to be much lower than the future growth of its business, which has averaged 6.2% over the past three years and is expected to grow by 18.93% per year over the next three years. five years.
Link: These companies can offer higher future returns with reduced risk.
Investing in companies with low financial strength presents a higher risk of permanent loss of capital. Thus, it is important to carefully consider the financial strength of a company before deciding whether or not to buy its shares. Examining the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a business. Pan American Silver has a cash-to-debt ratio of 8.31, which is within the average for companies in the metals and mining sector. GuruFocus ranks Pan American Silver’s overall financial strength as 8 out of 10, indicating that Pan American Silver’s financial strength is strong. Here is Pan American Silver’s debt and cash flow over the past few 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. Pan American Silver has been profitable 7 in the past 10 years. In the past twelve months, the company reported sales of $ 1.3 billion and earnings of $ 0.84 per share. Its operating margin is 13.44%, which ranks better than 70% of companies in the metals and mining industry. Overall, Pan American Silver’s profitability is ranked 6 out of 10, indicating acceptable profitability. Here is Pan American Silver’s sales and net profit for the past few years:
Growth is probably the most important factor in the valuation of a business. GuruFocus research has shown that growth is closely tied to the long-term performance of a company’s stocks. The faster a company grows, the more likely it is to create shareholder value, especially if the growth is profitable. Pan American Silver’s 3-year average annual revenue growth rate is 6.2%, which is in line with the average for companies in the metals and mining industry. The 3-year average EBITDA growth rate is 17.8%, which ranks among the average for companies in the metals and mining sector.
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, Pan American Silver’s return on invested capital is 4.27 and its cost of capital is 8.37. The ROIC vs WACC historical comparison of Pan American Silver is shown below:
In conclusion, the Pan American Silver stock (NAS: PAAS, 30 years Financials) is considered to be considerably overvalued. The company’s financial position is solid and its profitability is fair. Its growth is in the mid-range of companies in the metals and mining industry. To learn more about Pan American Silver stock, you can view its 30-year financial data here.
To find out about high-quality companies that can deliver above-average returns, please see GuruFocus High Quality Low Capex Screener.