Pan American Silver stock (NAS: PAAS, 30-year financials) would be slightly 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 $ 28.41 per share and market cap of $ 6 billion, Pan American Silver stock gives every indication of a modest overvaluation. The GF value for Pan American silver is shown in the table below.
Given that Pan American Silver is relatively overvalued, its long-term stock return is likely to be lower than its business growth, which has averaged 6.2% over the past three years and is expected to grow by 13. 02% per year for the next three to five years. .
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Since investing in companies with poor financial strength could result in a permanent loss of capital, investors should carefully consider the financial strength of a company before deciding whether or not to buy shares. Examining the cash-to-debt ratio and interest coverage can provide a good initial perspective on the financial strength of the business. Pan American Silver has a cash-to-debt ratio of 6.69, which is within the average for companies in the metals and mining sector. Based on this, GuruFocus ranks Pan American Silver’s financial strength at 8 out of 10, which suggests a strong balance sheet. Here is Pan American Silver’s debt and cash flow over the past few years:
Investing in profitable businesses carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a business with high profit margins offers better performance potential than a business with low profit margins. Pan American Silver has been profitable for 7 years in the past 10 years. In the past 12 months, the company reported sales of $ 1.3 billion and earnings of $ 1.17 per share. Its operating margin of 17.12% higher than 72% of companies in the metals and mining industry. Overall, GuruFocus rates Pan American Silver’s profitability as fair. 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 linked to a company’s long-term market performance. A faster growing business creates more shareholder value, especially if the growth is profitable. Pan American Silver’s 3-year average annual revenue growth is 6.2%, which ranks better than 66% of 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 determine a company’s profitability is to compare its return on invested capital to the weighted average 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. When the ROIC is higher than the WACC, it implies that the company creates value for the shareholders. In the past 12 months, Pan American Silver’s return on invested capital is 6.39 and its cost of capital is 8.27. The ROIC vs WACC historical comparison of Pan American Silver is shown below:
In short, the stock of Pan American Silver (NAS: PAAS, 30-year financials) is estimated to be slightly 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.
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