Yahoo Finanza Kronos Worldwide Stock Gives Every Indication Of Being Significantly Overvalued
- By GF Value
The stock of Kronos Worldwide (NYSE:KRO, 30-year Financials) appears 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 $17.55 per share and the market cap of $2 billion, Kronos Worldwide stock is believed to be significantly overvalued. GF Value for Kronos Worldwide is shown in the chart below.
Because Kronos Worldwide is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth.
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It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. Kronos Worldwide has a cash-to-debt ratio of 0.69, which is in the middle range of the companies in Chemicals industry. The overall financial strength of Kronos Worldwide is 5 out of 10, which indicates that the financial strength of Kronos Worldwide is fair. This is the debt and cash of Kronos Worldwide over the past years:
It poses less risk to invest in profitable companies, especially those that have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. Kronos Worldwide has been profitable 8 over the past 10 years. Over the past twelve months, the company had a revenue of $1.6 billion and earnings of $0.55 a share. Its operating margin is 6.16%, which ranks in the middle range of the companies in Chemicals industry. Overall, GuruFocus ranks the profitability of Kronos Worldwide at 6 out of 10, which indicates fair profitability. This is the revenue and net income of Kronos Worldwide over the past years:
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 Kronos Worldwide is -1.7%, which ranks worse than 67% of the companies in Chemicals industry. The 3-year average EBITDA growth rate is -23.5%, which ranks in the bottom 10% of the companies in Chemicals 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, Kronos Worldwide's return on invested capital is 5.86, and its cost of capital is 7.73. The historical ROIC vs WACC comparison of Kronos Worldwide is shown below:
To conclude, the stock of Kronos Worldwide (NYSE:KRO, 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 bottom 10% of the companies in Chemicals industry. To learn more about Kronos Worldwide stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.
