Century Aluminum Co (CENX, Financial) has recently shown a notable daily gain of 4.18% and an impressive three-month gain of 65.26%. With an Earnings Per Share (EPS) of 2.18, investors might wonder if the stock is significantly overvalued. This article delves into the valuation analysis of Century Aluminum Co, providing insights that could influence investment decisions.
Company Overview
Century Aluminum Co produces primary aluminum, including standard grade and value-added products, with operations in the United States and Iceland. A significant portion of its revenue comes from Glencore, which purchases nearly all of Century Aluminum's North American production. The company's current stock price is $17.94 per share, with a market capitalization of $1.70 billion. Comparing this to the GF Value, which estimates the fair value at $9.11, suggests that the stock might be significantly overvalued.
Understanding GF Value
The GF Value is a proprietary measure calculated based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. For Century Aluminum Co, the GF Value suggests a fair trading value significantly lower than its current market price. This discrepancy indicates that the stock might be overvalued, potentially leading to poorer future returns compared to its business growth.
Financial Strength and Stability
Investing in companies with robust financial health is crucial to avoid potential capital loss. Century Aluminum Co has a cash-to-debt ratio of 0.18, ranking lower than 85.48% of its peers in the Metals & Mining industry. This metric, along with a financial strength rating of 5 out of 10 from GuruFocus, suggests that the company has a fair balance sheet but could be at risk if adverse conditions arise.
Profitability and Growth Prospects
Century Aluminum Co has shown profitability in 2 out of the past 10 years, with recent revenues reaching $2.10 billion. However, its operating margin of 0.29% is lower than 54.04% of its industry counterparts, indicating relatively poor profitability. Furthermore, the company's growth has been lackluster, with a 3-year average EBITDA growth rate of 0%, positioning it poorly compared to industry growth metrics.
Investment Efficiency: ROIC vs. WACC
An effective way to evaluate a company's profitability and value creation is by comparing its Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC). Century Aluminum Co's ROIC over the past year is 0.49, significantly lower than its WACC of 15.76. This suggests that the company is not generating adequate returns on its investments, which could be a red flag for potential investors.
Conclusion
Despite the recent gains in its stock price, Century Aluminum Co (CENX, Financial) appears to be significantly overvalued when considering its GF Value and financial metrics. The company's moderate financial strength, coupled with poor profitability and growth prospects, suggests that investors should proceed with caution. For a deeper understanding of Century Aluminum Co's financial health and stock performance, consider exploring its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
