India’s globalization capital stock is believed to be significantly overvalued

– By GF value

India Globalization Capital (AMEX:IGC, 30-year Financials) stock appears to be significantly overvalued, according to GuruFocus Value’s calculation. GuruFocus Value is GuruFocus’ estimate of the fair value at which the stock should trade. It is calculated based on the historical multiples at which the stock has traded, past business growth and analysts’ estimates of the company’s future performance. If a stock’s price is significantly above the GF value line, it is overvalued and its future performance may be poor. On the other hand, if it is significantly lower than the GF value line, its future return is likely to be higher. At its current price of $1.5976 per share and market capitalization of $72.5 million, India Globalization Capital stock gives every indication of significant overvaluation. The GF value for India Globalization Capital is shown in the table below.

India’s globalization capital stock is believed to be significantly overvalued

Since India Globalization Capital is significantly overvalued, its long-term stock return is likely to be much lower than the future growth of its business, which has averaged 64.8% over the past five years.

Link: These companies can offer higher future returns with reduced risk.

Investing in companies with weak financial strength presents a higher risk of permanent loss of capital. Thus, it is important to carefully consider the financial strength of a company before deciding whether or not to buy its shares. Examining the cash-to-debt ratio and interest coverage is a great starting point for understanding a company’s financial strength. India Globalization Capital has a cash to debt ratio of 2.94, which is higher than 77% of companies in the conglomerate sector. GuruFocus ranks the overall financial strength of India Globalization Capital as 5 out of 10, indicating that the financial strength of India Globalization Capital is fair. Here is India Globalization Capital’s debt and cash flow over the past few years:

India's globalization capital stock is believed to be significantly overvalued

India’s globalization capital stock is believed to be significantly overvalued

Investing in profitable businesses carries less risk, especially in businesses that have demonstrated consistent profitability over the long term. Generally, a company with high profit margins offers better performance potential than a company with low profit margins. India Globalization Capital has been profitable 0 years in the past 10 years. Over the past 12 months, the company posted revenue of $0.8 million and a loss of $0.23 per share. Its operating margin of -990.07% in the bottom 10% of companies in the conglomerate sector. Overall, GuruFocus rates India Globalization Capital’s profitability as mediocre. Here are India Globalization Capital’s revenue and net income for the past few years:

India's globalization capital stock is believed to be significantly overvalued

India’s globalization capital stock is believed to be significantly overvalued

Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely tied to the long-term performance of a company’s stock. The faster a company grows, the more likely it is to create value for its shareholders, especially if the growth is profitable. The 3-year CAGR of India Globalization Capital is 64.8%, which ranks better than 96% of companies in the conglomerate industry. The average 3-year EBITDA growth rate is -52.4%, which ranks in the bottom 10% of companies in the conglomerate industry.

A company’s profitability can also be assessed 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. Over the past 12 months, India Globalization Capital’s ROIC is -46.69 while its WACC is 31.98. India Globalization Capital historical ROIC vs WACC comparison is shown below:

India's globalization capital stock is believed to be significantly overvalued

India’s globalization capital stock is believed to be significantly overvalued

In conclusion, India Globalization Capital (AMEX:IGC, 30-year Financials) stock is believed to be significantly overvalued. The financial situation of the company is correct and its profitability is mediocre. Its growth ranks in the bottom 10% of companies in the conglomerate sector. To learn more about the India Globalization Capital stock, you can view its 30-year financial statements here.

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This article first appeared on GuruFocus.

Sallie R. Loera