Peabody Energy Corp (BTU, Financial) is catching investor attention with its daily gain of 6.44% and a 3-month gain of 12.84%. Despite its impressive Earnings Per Share (EPS) of 9.08, the question remains: is the stock significantly overvalued? This article provides an in-depth analysis of Peabody Energy's valuation to answer this all-important question.
A Snapshot of Peabody Energy Corp (BTU, Financial)
Peabody Energy Corp is a leading producer of metallurgical and thermal coal. The company also markets and brokers coal and trades coal and freight-related contracts. With a diverse portfolio encompassing Seaborne Thermal Mining, Seaborne Metallurgical Mining, Powder River Basin Mining, and Midwestern U.S. Mining, Peabody Energy has a robust market presence.
With a current stock price of $24.88 and a market cap of $3.30 billion, it's essential to compare these metrics with the GF Value, an estimate of the stock's fair value. This comparison will provide a comprehensive understanding of Peabody Energy's true worth.
Understanding the GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It's computed based on historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line provides an overview of the fair value at which the stock should ideally be traded.
According to the GF Value calculation, Peabody Energy (BTU, Financial) appears to be significantly overvalued. The stock's future return is likely to be much lower than its future business growth due to its overvaluation.
Peabody Energy's Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's crucial to review a company's financial strength before deciding to buy shares. Peabody Energy has a cash-to-debt ratio of 3.12, ranking better than 51.7% of companies in the Other Energy Sources industry. Based on this, GuruFocus ranks Peabody Energy's financial strength as 8 out of 10, suggesting a strong balance sheet.
Profitability and Growth of Peabody Energy
Investing in profitable companies, especially those with consistent profitability over the long term, is less risky. Peabody Energy has been profitable three times over the past 10 years. Over the past twelve months, the company had a revenue of $5.60 billion and Earnings Per Share (EPS) of $9.08. Its operating margin is 28.99%, ranking better than 68.22% of companies in the Other Energy Sources industry. However, its overall profitability is ranked 4 out of 10, indicating poor profitability.
Growth is a crucial factor in a company's valuation. Peabody Energy's 3-year average revenue growth rate is worse than 93.33% of companies in the Other Energy Sources industry. Its 3-year average EBITDA growth rate is 23.9%, ranking worse than 59.42% of companies in the industry.
ROIC vs WACC Analysis
Comparing a company's return on invested capital (ROIC) to the weighted average cost of capital (WACC) is another method to determine 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. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Peabody Energy's ROIC is 40.18, and its WACC is 11.2.
Conclusion
Despite its strong financial condition, Peabody Energy's stock appears to be significantly overvalued. The company's profitability is poor, and its growth ranks worse than 59.42% of companies in the Other Energy Sources industry. To learn more about Peabody Energy stock, you can check out its 30-Year Financials here.
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