Pampa Energia SA (PAM, Financial) recently recorded a daily loss of -4.87% and a 3-month loss of -1.52%, with an Earnings Per Share (EPS) (EPS) of 10.29. This raises the question: is the stock significantly overvalued? Based on our valuation analysis, it appears so. Read on to gain deeper insights into Pampa Energia SA's financial performance and intrinsic value.
An Overview of Pampa Energia SA
Pampa Energia SA and its subsidiaries operate in the energy sector, with business segments that include electricity generation, electricity distribution, oil and gas, petrochemicals, and holding and other businesses. The company generates most of its revenue from energy distribution. With a current stock price of $38.84 and a market cap of $4.50 billion, our GF Value suggests that Pampa Energia SA's stock is significantly overvalued.
Understanding the GF Value
The GF Value is a proprietary measure of a stock's intrinsic value, based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
Currently, Pampa Energia SA's stock is believed to be significantly overvalued, suggesting that the long-term return of its stock is likely to be much lower than its future business growth.
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Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. A company's cash-to-debt ratio and interest coverage can provide a good initial perspective on its financial strength. Pampa Energia SA has a cash-to-debt ratio of 0.53, ranking better than 65.62% of 413 companies in the Utilities - Independent Power Producers industry. GuruFocus ranks Pampa Energia SA's financial strength as 6 out of 10, suggesting a fair balance sheet.
Profitability and Growth
Investing in profitable companies carries less risk. Pampa Energia SA has been profitable 9 years over the past 10 years, with revenues of $2 billion and an EPS of $10.29 in the past 12 months. Its operating margin of 26.66% is better than 69.85% of 398 companies in the Utilities - Independent Power Producers industry. GuruFocus ranks Pampa Energia SA's profitability as strong.
Growth is a crucial factor in a company's valuation. Pampa Energia SA's 3-year average annual revenue growth of 70.8% ranks better than 91.39% of 360 companies in the Utilities - Independent Power Producers industry. The 3-year average EBITDA growth rate is 63.6%, which ranks better than 88.79% of 339 companies in the same industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted cost of capital (WACC) can also help evaluate its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business, while WACC is the expected rate that a company is supposed to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Pampa Energia SA's ROIC was 12.2, while its WACC came in at 10.62.
Conclusion
In conclusion, Pampa Energia SA (PAM, Financial) is believed to be significantly overvalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 88.79% of 339 companies in the Utilities - Independent Power Producers industry. To learn more about Pampa Energia SA stock, you can check out its 30-Year Financials here.
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