- By GF Value
The stock of Iamgold (NYSE:IAG, 30-year Financials) is believed to be modestly undervalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $3.18 per share and the market cap of $1.5 billion, Iamgold stock is believed to be modestly undervalued. GF Value for Iamgold is shown in the chart below.
Warning! GuruFocus has detected 3 Warning Signs with IAG. Click here to check it out.
IAG 15-Year Financial Data
The intrinsic value of IAG
Peter Lynch Chart of IAG
Because Iamgold is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth, which averaged 3.6% over the past three years and is estimated to grow 6.74% annually over the next three to five years.
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It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. Iamgold has a cash-to-debt ratio of 1.78, which is worse than 67% of the companies in Metals & Mining industry. The overall financial strength of Iamgold is 6 out of 10, which indicates that the financial strength of Iamgold is fair. This is the debt and cash of Iamgold over the past years:
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Iamgold has been profitable 5 years over the past 10 years. During the past 12 months, the company had revenues of $1.2 billion and earnings of $0.09 a share. Its operating margin of 11.77% better than 70% of the companies in Metals & Mining industry. Overall, GuruFocus ranks Iamgold's profitability as poor. This is the revenue and net income of Iamgold over the past years:
Growth is probably one of the most important factors in the valuation of a company. GuruFocus' research has found that growth is closely correlated with the long-term performance of a company's stock. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. Iamgold's 3-year average revenue growth rate is in the middle range of the companies in Metals & Mining industry. Iamgold's 3-year average EBITDA growth rate is -25.2%, which ranks worse than 82% of the companies in Metals & Mining industry.
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). Return on invested capital (ROIC) measures how well a company 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 is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Iamgold's ROIC was 2.76, while its WACC came in at 5.37. The historical ROIC vs WACC comparison of Iamgold is shown below:
In summary, the stock of Iamgold (NYSE:IAG, 30-year Financials) shows every sign of being modestly undervalued. The company's financial condition is fair and its profitability is poor. Its growth ranks worse than 82% of the companies in Metals & Mining industry. To learn more about Iamgold stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.