Advertisement
UK markets close in 4 hours 49 minutes
  • FTSE 100

    7,952.37
    +20.39 (+0.26%)
     
  • FTSE 250

    19,862.88
    +52.22 (+0.26%)
     
  • AIM

    743.40
    +1.29 (+0.17%)
     
  • GBP/EUR

    1.1695
    +0.0026 (+0.22%)
     
  • GBP/USD

    1.2620
    -0.0018 (-0.14%)
     
  • Bitcoin GBP

    56,011.55
    +305.95 (+0.55%)
     
  • CMC Crypto 200

    885.54
    0.00 (0.00%)
     
  • S&P 500

    5,248.49
    +44.91 (+0.86%)
     
  • DOW

    39,760.08
    +477.75 (+1.22%)
     
  • CRUDE OIL

    82.50
    +1.15 (+1.41%)
     
  • GOLD FUTURES

    2,233.50
    +20.80 (+0.94%)
     
  • NIKKEI 225

    40,168.07
    -594.66 (-1.46%)
     
  • HANG SENG

    16,541.42
    +148.58 (+0.91%)
     
  • DAX

    18,489.85
    +12.76 (+0.07%)
     
  • CAC 40

    8,231.97
    +27.16 (+0.33%)
     

CF Industries Holdings Stock Gives Every Indication Of Being Modestly Overvalued

- By GF Value

The stock of CF Industries Holdings (NYSE:CF, 30-year Financials) is estimated to be modestly 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 $55.56 per share and the market cap of $11.9 billion, CF Industries Holdings stock is estimated to be modestly overvalued. GF Value for CF Industries Holdings is shown in the chart below.


CF Industries Holdings Stock Gives Every Indication Of Being Modestly Overvalued
CF Industries Holdings Stock Gives Every Indication Of Being Modestly Overvalued

Because CF Industries Holdings is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth, which averaged 2.8% over the past three years and is estimated to grow 2.12% annually over the next three to five years.

ADVERTISEMENT

Link: These companies may deliever higher future returns at reduced risk.

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. CF Industries Holdings has a cash-to-debt ratio of 0.20, which ranks worse than 77% of the companies in Agriculture industry. Based on this, GuruFocus ranks CF Industries Holdings's financial strength as 4 out of 10, suggesting poor balance sheet. This is the debt and cash of CF Industries Holdings over the past years:

CF Industries Holdings Stock Gives Every Indication Of Being Modestly Overvalued
CF Industries Holdings Stock Gives Every Indication Of Being Modestly Overvalued

Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. CF Industries Holdings has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of $4.2 billion and earnings of $1.86 a share. Its operating margin is 16.42%, which ranks better than 80% of the companies in Agriculture industry. Overall, the profitability of CF Industries Holdings is ranked 7 out of 10, which indicates fair profitability. This is the revenue and net income of CF Industries Holdings over the past years:

CF Industries Holdings Stock Gives Every Indication Of Being Modestly Overvalued
CF Industries Holdings Stock Gives Every Indication Of Being Modestly Overvalued

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. CF Industries Holdings's 3-year average revenue growth rate is in the middle range of the companies in Agriculture industry. CF Industries Holdings's 3-year average EBITDA growth rate is 16.2%, which ranks better than 68% of the companies in Agriculture industry.

Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average cost of capital. 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. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, CF Industries Holdings's return on invested capital is 5.78, and its cost of capital is 7.81. The historical ROIC vs WACC comparison of CF Industries Holdings is shown below:

CF Industries Holdings Stock Gives Every Indication Of Being Modestly Overvalued
CF Industries Holdings Stock Gives Every Indication Of Being Modestly Overvalued

Overall, the stock of CF Industries Holdings (NYSE:CF, 30-year Financials) gives every indication of being modestly overvalued. The company's financial condition is poor and its profitability is fair. Its growth ranks better than 68% of the companies in Agriculture industry. To learn more about CF Industries Holdings stock, you can check out its 30-year Financials here.

To find out the high quality companies that may deliever above average returns, please check out GuruFocus High Quality Low Capex Screener.

This article first appeared on GuruFocus.