- By GF Value
The stock of Intrepid Potash (NYSE:IPI, 30-year Financials) gives every indication of being fairly valued, 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 $32.86 per share and the market cap of $440.7 million, Intrepid Potash stock is estimated to be fairly valued. GF Value for Intrepid Potash is shown in the chart below.
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IPI 15-Year Financial Data
The intrinsic value of IPI
Peter Lynch Chart of IPI
Because Intrepid Potash is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which is estimated to grow 0.69% annually over the next three to five years.
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Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. Intrepid Potash has a cash-to-debt ratio of 0.34, which which ranks in the middle range of the companies in Agriculture industry. The overall financial strength of Intrepid Potash is 5 out of 10, which indicates that the financial strength of Intrepid Potash is fair. This is the debt and cash of Intrepid Potash over the past years:
It is less risky to invest in profitable companies, especially those with consistent profitability over long term. A company with high profit margins is usually a safer investment than those with low profit margins. Intrepid Potash has been profitable 6 over the past 10 years. Over the past twelve months, the company had a revenue of $197 million and loss of $2.13 a share. Its operating margin is -8.83%, which ranks worse than 86% of the companies in Agriculture industry. Overall, the profitability of Intrepid Potash is ranked 4 out of 10, which indicates poor profitability. This is the revenue and net income of Intrepid Potash over the past years:
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Intrepid Potash is -0.5%, which ranks in the middle range of the companies in Agriculture industry. The 3-year average EBITDA growth is -12.9%, which ranks worse than 84% of the companies in Agriculture industry.
Another way to look at the profitability of a company is to compare its return on invested capital and the weighted cost of capital. 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. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, Intrepid Potash's return on invested capital is -3.36, and its cost of capital is 13.78. The historical ROIC vs WACC comparison of Intrepid Potash is shown below:
In short, Intrepid Potash (NYSE:IPI, 30-year Financials) stock is estimated to be fairly valued. The company's financial condition is fair and its profitability is poor. Its growth ranks worse than 84% of the companies in Agriculture industry. To learn more about Intrepid Potash stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.