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Anhui Conch Cement Co Stock Is Believed To Be Modestly Undervalued
- By GF Value
The stock of Anhui Conch Cement Co (OTCPK:AHCHY, 30-year Financials) appears 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 $30.15 per share and the market cap of $32 billion, Anhui Conch Cement Co stock is estimated to be modestly undervalued. GF Value for Anhui Conch Cement Co is shown in the chart below.
Because Anhui Conch Cement Co is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth, which averaged 32.8% over the past three years and is estimated to grow 5.38% annually over the next three to five years.
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Since investing in companies with low financial strength could result in permanent capital loss, investors must carefully review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. Anhui Conch Cement Co has a cash-to-debt ratio of 8.68, which ranks better than 86% of the companies in Building Materials industry. Based on this, GuruFocus ranks Anhui Conch Cement Co's financial strength as 8 out of 10, suggesting strong balance sheet. This is the debt and cash of Anhui Conch Cement Co 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. Anhui Conch Cement Co has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $27.8 billion and earnings of $5.03 a share. Its operating margin is 22.83%, which ranks better than 85% of the companies in Building Materials industry. Overall, the profitability of Anhui Conch Cement Co is ranked 9 out of 10, which indicates strong profitability. This is the revenue and net income of Anhui Conch Cement Co over the past years:
Growth is probably the most important factor 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. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Anhui Conch Cement Co is 32.8%, which ranks better than 97% of the companies in Building Materials industry. The 3-year average EBITDA growth rate is 25.6%, which ranks better than 84% of the companies in Building Materials 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, Anhui Conch Cement Co's return on invested capital is 34.86, and its cost of capital is 7.26. The historical ROIC vs WACC comparison of Anhui Conch Cement Co is shown below:
In summary, The stock of Anhui Conch Cement Co (OTCPK:AHCHY, 30-year Financials) is estimated to be modestly undervalued. The company's financial condition is strong and its profitability is strong. Its growth ranks better than 84% of the companies in Building Materials industry. To learn more about Anhui Conch Cement Co stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.
