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Compagnie de Saint-Gobain SA Stock Appears To Be Significantly Overvalued

·4 min read

- By GF Value

The stock of Compagnie de Saint-Gobain SA (OTCPK:CODYY, 30-year Financials) is believed to be 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 $12.54 per share and the market cap of $33.2 billion, Compagnie de Saint-Gobain SA stock is believed to be significantly overvalued. GF Value for Compagnie de Saint-Gobain SA is shown in the chart below.


Compagnie de Saint-Gobain SA Stock Appears To Be Significantly Overvalued
Compagnie de Saint-Gobain SA Stock Appears To Be Significantly Overvalued

Because Compagnie de Saint-Gobain SA 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 0.30% 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. Compagnie de Saint-Gobain SA has a cash-to-debt ratio of 0.55, which which ranks in the middle range of the companies in Construction industry. The overall financial strength of Compagnie de Saint-Gobain SA is 5 out of 10, which indicates that the financial strength of Compagnie de Saint-Gobain SA is fair. This is the debt and cash of Compagnie de Saint-Gobain SA over the past years:

Compagnie de Saint-Gobain SA Stock Appears To Be Significantly Overvalued
Compagnie de Saint-Gobain SA Stock Appears To Be Significantly 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. Compagnie de Saint-Gobain SA has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $47.7 billion and earnings of $0.578 a share. Its operating margin is 7.70%, which ranks in the middle range of the companies in Construction industry. Overall, the profitability of Compagnie de Saint-Gobain SA is ranked 6 out of 10, which indicates fair profitability. This is the revenue and net income of Compagnie de Saint-Gobain SA over the past years:

Compagnie de Saint-Gobain SA Stock Appears To Be Significantly Overvalued
Compagnie de Saint-Gobain SA Stock Appears To Be Significantly 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. Compagnie de Saint-Gobain SA's 3-year average revenue growth rate is in the middle range of the companies in Construction industry. Compagnie de Saint-Gobain SA's 3-year average EBITDA growth rate is 3.9%, which ranks in the middle range of the companies in Construction industry.

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, Compagnie de Saint-Gobain SA's return on invested capital is 6.14, and its cost of capital is 5.77. The historical ROIC vs WACC comparison of Compagnie de Saint-Gobain SA is shown below:

Compagnie de Saint-Gobain SA Stock Appears To Be Significantly Overvalued
Compagnie de Saint-Gobain SA Stock Appears To Be Significantly Overvalued

In closing, the stock of Compagnie de Saint-Gobain SA (OTCPK:CODYY, 30-year Financials) shows every sign of being significantly overvalued. The company's financial condition is fair and its profitability is fair. Its growth ranks in the middle range of the companies in Construction industry. To learn more about Compagnie de Saint-Gobain SA stock, you can check out its 30-year Financials here.

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This article first appeared on GuruFocus.

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