Cameco Corp (CCJ, Financial) is currently trading at $40.42, experiencing a daily gain of 4.26% and a three-month gain of 29.06%. Despite its impressive performance, the question remains: is the stock significantly overvalued? With an Earnings Per Share (EPS) of 0.15, the valuation analysis of Cameco Corp (CCJ) is critical for investors. This article offers an in-depth analysis of Cameco's intrinsic value to help answer this question.
Company Overview
Cameco Corp is a global leader in uranium production. Its flagship McArthur River mine in Saskatchewan accounts for approximately 50% of output in normal market conditions. Amid years of uranium price weakness, the company has strategically reduced production, purchasing from the spot market to meet contracted deliveries. In the long term, Cameco has the potential to increase annual uranium production by restarting shut mines and investing in new ones. In addition to its large uranium mining business, Cameco operates uranium conversion and fabrication facilities.
Understanding GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It is calculated based on historical trading multiples, a GuruFocus adjustment factor based on past returns and growth, and future estimates of business performance. The GF Value Line on our summary page provides an overview of the fair value at which the stock should ideally be traded.
According to our analysis, Cameco (CCJ, Financial) appears to be significantly overvalued. Based on its current price of $40.42 per share and a market cap of $17.50 billion, the stock's future return is likely to be much lower than its future business growth due to its significant overvaluation.
Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, a careful review of a company's financial strength is essential before deciding to buy shares. Cameco has a cash-to-debt ratio of 2.23, which ranks worse than 52.84% of 176 companies in the Other Energy Sources industry. Based on this, GuruFocus ranks Cameco's financial strength as 7 out of 10, suggesting a fair balance sheet.
Profitability and Growth
Companies that have been consistently profitable over the long term offer less risk for investors. Cameco has been profitable 6 over the past 10 years. Over the past twelve months, the company had a revenue of $1.50 billion and Earnings Per Share (EPS) of $0.15. Its operating margin is 2.65%, which ranks worse than 72.09% of 129 companies in the Other Energy Sources industry. Overall, the profitability of Cameco is ranked 5 out of 10, which indicates fair profitability.
Growth is a critical factor in the valuation of a company. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Cameco is -0.8%, which ranks worse than 85.83% of 120 companies in the Other Energy Sources industry. The 3-year average EBITDA growth rate is -13.3%, which ranks worse than 86.86% of 137 companies in the Other Energy Sources industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can also evaluate a company's profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. During the past 12 months, Cameco's ROIC is 0.7 while its WACC came in at 10.86.
Conclusion
In conclusion, the stock of Cameco (CCJ, Financial) appears to be significantly overvalued. The company's financial condition is fair and its profitability is fair. Its growth ranks worse than 86.86% of 137 companies in the Other Energy Sources industry. To learn more about Cameco stock, you can check out its 30-Year Financials here.
To find out the high-quality companies that may deliver above-average returns, please check out GuruFocus High Quality Low Capex Screener.
