The stock of Fuwei Films (Holdings) Co (NAS:FFHL, 30-year Financials) gives every indication 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 $10.13 per share and the market cap of $33.1 million, Fuwei Films (Holdings) Co stock gives every indication of being significantly overvalued. GF Value for Fuwei Films (Holdings) Co is shown in the chart below.
Because Fuwei Films (Holdings) Co is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 5.3% over the past five years.
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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. Fuwei Films (Holdings) Co has a cash-to-debt ratio of 1.55, which is better than 71% of the companies in Packaging & Containers industry. GuruFocus ranks the overall financial strength of Fuwei Films (Holdings) Co at 5 out of 10, which indicates that the financial strength of Fuwei Films (Holdings) Co is fair. This is the debt and cash of Fuwei Films (Holdings) Co 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. Fuwei Films (Holdings) Co has been profitable 3 years over the past 10 years. During the past 12 months, the company had revenues of $52.9 million and earnings of $1.708 a share. Its operating margin of 21.67% better than 98% of the companies in Packaging & Containers industry. Overall, GuruFocus ranks Fuwei Films (Holdings) Co’s profitability as poor. This is the revenue and net income of Fuwei Films (Holdings) Co 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. Fuwei Films (Holdings) Co’s 3-year average revenue growth rate is better than 68% of the companies in Packaging & Containers industry. Fuwei Films (Holdings) Co’s 3-year average EBITDA growth rate is 103.7%, which ranks better than 98% of the companies in Packaging & Containers 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, Fuwei Films (Holdings) Co’s return on invested capital is 22.55, and its cost of capital is 5.76. The historical ROIC vs WACC comparison of Fuwei Films (Holdings) Co is shown below:
In conclusion, the stock of Fuwei Films (Holdings) Co (NAS:FFHL, 30-year Financials) appears to be significantly overvalued. The company's financial condition is fair and its profitability is poor. Its growth ranks better than 98% of the companies in Packaging & Containers industry. To learn more about Fuwei Films (Holdings) Co stock, you can check out its 30-year Financials here.
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