Warrior Met Coal Inc (HCC, Financial) recently experienced a daily gain of 10.5% and a 3-month gain of 28.49%, with an Earnings Per Share (EPS) (EPS) of 8.92. However, the question that arises is whether the stock is significantly overvalued. This article aims to provide an in-depth analysis of Warrior Met Coal's intrinsic value and its financial standing. We encourage you to read on for a comprehensive understanding of the company's valuation.
Company Introduction
Warrior Met Coal Inc is a US-based company, engaged in the production and export of met coal. The company operates two underground mines in Alabama, selling to steel manufacturers in Europe, Asia, and South America. Its mining operations consist of two underground met coal mines in Southern Appalachia's coal seam and other surface met and thermal coal mines. Despite its current stock price of $51.94, the GF Value, an estimation of fair value, stands at $37.54, suggesting a significant overvaluation.
Understanding the GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. The GF Value Line provides an overview of the stock's ideal fair trading value, calculated based on historical multiples, a GuruFocus adjustment factor, and future business performance estimates. If the stock price deviates significantly from the GF Value Line, it indicates overvaluation or undervaluation, impacting its future returns.
Warrior Met Coal's stock appears to be significantly overvalued based on the GF Value. At its current price of $51.94 per share and a market cap of $2.70 billion, the stock's future return is likely to be much lower than its future business growth due to this overvaluation.
Financial Strength
Examining a company's financial strength is crucial before investing in its stock. Companies with poor financial strength pose a higher risk of permanent loss. Factors like the cash-to-debt ratio and interest coverage help gauge a company's financial health. Warrior Met Coal has a cash-to-debt ratio of 2.58, outperforming 78.88% of 587 companies in the Steel industry. This strong financial strength is further reflected in its overall rating of 9 out of 10.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, poses less risk. Companies with high profit margins are also typically safer investments than those with low profit margins. Warrior Met Coal has been profitable 5 over the past 10 years, with a revenue of $1.60 billion and an Earnings Per Share (EPS) of $8.92 over the past twelve months. Its operating margin is 34.96%, ranking better than 98.01% of 603 companies in the Steel industry. Overall, GuruFocus ranks the profitability of Warrior Met Coal at 7 out of 10.
Company growth is a crucial factor in valuation. Faster-growing companies create more value for shareholders, especially if the growth is profitable. Warrior Met Coal's 3-year average annual revenue growth is 10.9%, ranking below 50.26% of 585 companies in the Steel industry. However, its 3-year average EBITDA growth rate is 22.8%, outperforming 54.64% of 507 companies in the Steel industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted cost of capital (WACC) is another way to evaluate its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. 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, Warrior Met Coal's ROIC was 41.71, while its WACC came in at 9.74.
Conclusion
Despite its strong financial condition and fair profitability, Warrior Met Coal (HCC, Financial) stock appears to be significantly overvalued. Its growth ranks better than 54.64% of 507 companies in the Steel industry. For more details about Warrior Met Coal stock, you can check out its 30-Year Financials here.
To discover high-quality companies that may deliver above-average returns, please check out the GuruFocus High Quality Low Capex Screener.
