UK markets closed
  • NIKKEI 225

    27,970.22
    +136.93 (+0.49%)
     
  • HANG SENG

    25,086.43
    -1,105.89 (-4.22%)
     
  • CRUDE OIL

    71.71
    -0.20 (-0.28%)
     
  • GOLD FUTURES

    1,799.50
    +0.30 (+0.02%)
     
  • DOW

    35,023.00
    -121.31 (-0.35%)
     
  • BTC-GBP

    27,437.43
    -1,396.74 (-4.84%)
     
  • CMC Crypto 200

    899.59
    +23.36 (+2.67%)
     
  • ^IXIC

    14,628.86
    -211.85 (-1.43%)
     
  • ^FTAS

    4,010.29
    -15.70 (-0.39%)
     

Tokyo Electric Power Co Holdings Stock Is Believed To Be Modestly Undervalued

·4-min read

- By GF Value

The stock of Tokyo Electric Power Co Holdings (OTCPK:TKECY, 30-year Financials) appears 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 $3.15 per share and the market cap of $5 billion, Tokyo Electric Power Co Holdings stock is believed to be modestly undervalued. GF Value for Tokyo Electric Power Co Holdings is shown in the chart below.


Tokyo Electric Power Co Holdings Stock Is Believed To Be Modestly Undervalued
Tokyo Electric Power Co Holdings Stock Is Believed To Be Modestly Undervalued

Because Tokyo Electric Power Co Holdings is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth, which averaged 5.2% over the past five years.

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

Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Thus, it is important to carefully review the financial strength of a company before deciding whether to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company. Tokyo Electric Power Co Holdings has a cash-to-debt ratio of 0.15, which is in the middle range of the companies in the industry of Utilities - Independent Power Producers. GuruFocus ranks the overall financial strength of Tokyo Electric Power Co Holdings at 3 out of 10, which indicates that the financial strength of Tokyo Electric Power Co Holdings is poor. This is the debt and cash of Tokyo Electric Power Co Holdings over the past years:

Tokyo Electric Power Co Holdings Stock Is Believed To Be Modestly Undervalued
Tokyo Electric Power Co Holdings Stock Is Believed To Be Modestly Undervalued

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. Tokyo Electric Power Co Holdings has been profitable 7 over the past 10 years. Over the past twelve months, the company had a revenue of $53.7 billion and loss of $1.578 a share. Its operating margin is 2.06%, which ranks worse than 75% of the companies in the industry of Utilities - Independent Power Producers. Overall, the profitability of Tokyo Electric Power Co Holdings is ranked 5 out of 10, which indicates fair profitability. This is the revenue and net income of Tokyo Electric Power Co Holdings over the past years:

Tokyo Electric Power Co Holdings Stock Is Believed To Be Modestly Undervalued
Tokyo Electric Power Co Holdings Stock Is Believed To Be Modestly Undervalued

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 stock performance of a company. A faster growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Tokyo Electric Power Co Holdings is 5.2%, 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 -12%, which ranks worse than 83% of the companies in the industry of Utilities - Independent Power Producers.

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, Tokyo Electric Power Co Holdings's return on invested capital is 0.83, and its cost of capital is 0.83. The historical ROIC vs WACC comparison of Tokyo Electric Power Co Holdings is shown below:

Tokyo Electric Power Co Holdings Stock Is Believed To Be Modestly Undervalued
Tokyo Electric Power Co Holdings Stock Is Believed To Be Modestly Undervalued

To conclude, Tokyo Electric Power Co Holdings (OTCPK:TKECY, 30-year Financials) stock gives every indication of being modestly undervalued. The company's financial condition is poor and its profitability is fair. Its growth ranks worse than 83% of the companies in the industry of Utilities - Independent Power Producers. To learn more about Tokyo Electric Power Co 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.

Our goal is to create a safe and engaging place for users to connect over interests and passions. In order to improve our community experience, we are temporarily suspending article commenting