Yahoo Finance Rayonier Advanced Materials Stock Shows Every Sign Of Being Significantly Overvalued
- By GF Value
The stock of Rayonier Advanced Materials (NYSE:RYAM, 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 $9.49 per share and the market cap of $603.4 million, Rayonier Advanced Materials stock gives every indication of being significantly overvalued. GF Value for Rayonier Advanced Materials is shown in the chart below.
Because Rayonier Advanced Materials is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 17.8% over the past three years and is estimated to grow 0.52% annually over the next three to 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. Rayonier Advanced Materials has a cash-to-debt ratio of 0.09, which is in the bottom 10% of the companies in Chemicals industry. GuruFocus ranks the overall financial strength of Rayonier Advanced Materials at 4 out of 10, which indicates that the financial strength of Rayonier Advanced Materials is poor. This is the debt and cash of Rayonier Advanced Materials over the past years:
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Rayonier Advanced Materials has been profitable 9 years over the past 10 years. During the past 12 months, the company had revenues of $1.7 billion and earnings of $0.01 a share. Its operating margin of 2.11% worse than 78% of the companies in Chemicals industry. Overall, GuruFocus ranks Rayonier Advanced Materials's profitability as fair. This is the revenue and net income of Rayonier Advanced Materials 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. Rayonier Advanced Materials's 3-year average revenue growth rate is better than 85% of the companies in Chemicals industry. Rayonier Advanced Materials's 3-year average EBITDA growth rate is -31.2%, which ranks in the bottom 10% of the companies in Chemicals industry.
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average 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 return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, Rayonier Advanced Materials's ROIC is -0.02 while its WACC came in at 11.15. The historical ROIC vs WACC comparison of Rayonier Advanced Materials is shown below:
In closing, the stock of Rayonier Advanced Materials (NYSE:RYAM, 30-year Financials) is estimated to be significantly overvalued. The company's financial condition is poor and its profitability is fair. Its growth ranks in the bottom 10% of the companies in Chemicals industry. To learn more about Rayonier Advanced Materials 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.
