Yahoo Finance Korea Electric Power Stock Shows Every Sign Of Being Modestly Undervalued
- By GF Value
The stock of Korea Electric Power (NYSE:KEP, 30-year Financials) is estimated to be modestly undervalued, 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 $10.51 per share and the market cap of $13.5 billion, Korea Electric Power stock is estimated to be modestly undervalued. GF Value for Korea Electric Power is shown in the chart below.
Because Korea Electric Power is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth, which is estimated to grow 0.90% 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. Korea Electric Power has a cash-to-debt ratio of 10000.00, which ranks better than 100% of the companies in the industry of Utilities - Regulated. Based on this, GuruFocus ranks Korea Electric Power's financial strength as 6 out of 10, suggesting fair balance sheet. This is the debt and cash of Korea Electric Power over the past years:
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. Korea Electric Power has been profitable 6 over the past 10 years. Over the past twelve months, the company had a revenue of $50 billion and earnings of $1.344 a share. Its operating margin is 6.77%, which ranks worse than 69% of the companies in the industry of Utilities - Regulated. Overall, the profitability of Korea Electric Power is ranked 5 out of 10, which indicates fair profitability. This is the revenue and net income of Korea Electric Power over the past years:
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. Korea Electric Power's 3-year average revenue growth rate is worse than 66% of the companies in the industry of Utilities - Regulated. Korea Electric Power's 3-year average EBITDA growth rate is 4.7%, which ranks in the middle range of the companies in the industry of Utilities - Regulated.
Another way to look at the profitability of a company is to compare its return on invested capital and the weighted 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. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, Korea Electric Power's return on invested capital is 1.40, and its cost of capital is 15.86. The historical ROIC vs WACC comparison of Korea Electric Power is shown below:
In conclusion, Korea Electric Power (NYSE:KEP, 30-year Financials) stock is believed to be modestly undervalued. The company's financial condition is fair and its profitability is fair. Its growth ranks in the middle range of the companies in the industry of Utilities - Regulated. To learn more about Korea Electric Power stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.
