Capstone Mining Stock Appears To Be Significantly Overvalued

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Jun 24, 2021
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The stock of Capstone Mining (OTCPK:CSFFF, 30-year Financials) gives every indication of being significantly overvalued, 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 $4.09 per share and the market cap of $1.7 billion, Capstone Mining stock gives every indication of being significantly overvalued. GF Value for Capstone Mining is shown in the chart below.

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Because Capstone Mining is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 1.1% over the past three years and is estimated to grow 12.24% 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. Capstone Mining has a cash-to-debt ratio of 2.87, which ranks in the middle range of the companies in Metals & Mining industry. Based on this, GuruFocus ranks Capstone Mining’s financial strength as 7 out of 10, suggesting fair balance sheet. This is the debt and cash of Capstone Mining over the past years:

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Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Capstone Mining has been profitable 4 years over the past 10 years. During the past 12 months, the company had revenues of $587.5 million and earnings of $0.33 a share. Its operating margin of 20.29% better than 75% of the companies in Metals & Mining industry. Overall, GuruFocus ranks Capstone Mining’s profitability as poor. This is the revenue and net income of Capstone Mining over the past years:

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Growth is probably one of the most important factors 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. If a company’s business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. Capstone Mining’s 3-year average revenue growth rate is in the middle range of the companies in Metals & Mining industry. Capstone Mining’s 3-year average EBITDA growth rate is -8.2%, which ranks worse than 72% of the companies in Metals & Mining industry.

Another way to evaluate a company’s profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). 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. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Capstone Mining’s ROIC was 7.42, while its WACC came in at 12.21. The historical ROIC vs WACC comparison of Capstone Mining is shown below:

In short, Capstone Mining (OTCPK:CSFFF, 30-year Financials) stock is estimated to be significantly overvalued. The company's financial condition is fair and its profitability is poor. Its growth ranks worse than 72% of the companies in Metals & Mining industry. To learn more about Capstone Mining stock, you can check out its 30-year Financials here.

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