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Atlantica Sustainable Infrastructure PLC Stock Gives Every Indication Of Being Significantly ...

- By GF Value

The stock of Atlantica Sustainable Infrastructure PLC (NAS:AY, 30-year Financials) shows every sign 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 $35.8 per share and the market cap of $4 billion, Atlantica Sustainable Infrastructure PLC stock gives every indication of being significantly overvalued. GF Value for Atlantica Sustainable Infrastructure PLC is shown in the chart below.


Atlantica Sustainable Infrastructure PLC Stock Gives Every Indication Of Being Significantly Overvalued
Atlantica Sustainable Infrastructure PLC Stock Gives Every Indication Of Being Significantly Overvalued

Because Atlantica Sustainable Infrastructure PLC is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which is estimated to grow 6.24% annually over the next three to five years.

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Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. Atlantica Sustainable Infrastructure PLC has a cash-to-debt ratio of 0.20, which which ranks in the middle range of the companies in the industry of Utilities - Independent Power Producers. The overall financial strength of Atlantica Sustainable Infrastructure PLC is 3 out of 10, which indicates that the financial strength of Atlantica Sustainable Infrastructure PLC is poor. This is the debt and cash of Atlantica Sustainable Infrastructure PLC over the past years:

Atlantica Sustainable Infrastructure PLC Stock Gives Every Indication Of Being Significantly Overvalued
Atlantica Sustainable Infrastructure PLC Stock Gives Every Indication Of Being Significantly Overvalued

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. Atlantica Sustainable Infrastructure PLC has been profitable 4 over the past 10 years. Over the past twelve months, the company had a revenue of $1 billion and earnings of $0.35 a share. Its operating margin is 38.24%, which ranks better than 83% of the companies in the industry of Utilities - Independent Power Producers. Overall, the profitability of Atlantica Sustainable Infrastructure PLC is ranked 5 out of 10, which indicates fair profitability. This is the revenue and net income of Atlantica Sustainable Infrastructure PLC over the past years:

Atlantica Sustainable Infrastructure PLC Stock Gives Every Indication Of Being Significantly Overvalued
Atlantica Sustainable Infrastructure PLC Stock Gives Every Indication Of Being Significantly Overvalued

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 Atlantica Sustainable Infrastructure PLC is -0.9%, which ranks in the middle range of the companies in the industry of Utilities - Independent Power Producers. The 3-year average EBITDA growth rate is 1.2%, which ranks in the middle range of the companies in the industry of Utilities - Independent Power Producers.

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, Atlantica Sustainable Infrastructure PLC's ROIC was 2.04, while its WACC came in at 3.52. The historical ROIC vs WACC comparison of Atlantica Sustainable Infrastructure PLC is shown below:

Atlantica Sustainable Infrastructure PLC Stock Gives Every Indication Of Being Significantly Overvalued
Atlantica Sustainable Infrastructure PLC Stock Gives Every Indication Of Being Significantly Overvalued

To conclude, Atlantica Sustainable Infrastructure PLC (NAS:AY, 30-year Financials) stock is believed to be significantly overvalued. The company's financial condition is poor and its profitability is fair. Its growth ranks in the middle range of the companies in the industry of Utilities - Independent Power Producers. To learn more about Atlantica Sustainable Infrastructure PLC stock, you can check out its 30-year Financials here.

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This article first appeared on GuruFocus.