The stock of Pampa Energia SA (PAM, Financial) has experienced a daily loss of -7.31% and a 3-month loss of -13.94%, with an Earnings Per Share (EPS) of 10.29. This raises the question: is the stock significantly overvalued? To answer this, we delve into a comprehensive valuation analysis. We invite you to join us in this exploration.
Company Introduction
Pampa Energia SA and its subsidiaries are key players in the energy business. The company operates in various segments including electricity generation, distribution, oil and gas, petrochemicals, and other businesses. As of October 23, 2023, the company's stock price stands at $38.03, significantly higher than the GF Value of $24.48, suggesting that the stock is overvalued. Let's take a closer look at the company's value.
Deciphering the GF Value
The GF Value is an exclusive GuruFocus measure that estimates a stock's intrinsic value. The GF Value Line, displayed on our summary page, represents the fair value at which the stock should ideally be traded. This value is derived from three factors: historical multiples (PE Ratio, PS Ratio, PB Ratio and Price-to-Free-Cash-Flow) that the stock has traded at, the GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of the business performance.
At its current price of $38.03 per share, Pampa Energia SA has a market cap of $6.30 billion, indicating that the stock is significantly overvalued. Consequently, the long-term return of its stock is likely to be much lower than its future business growth.
Assessing Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's crucial to review a company's financial strength before purchasing shares. Pampa Energia SA has a cash-to-debt ratio of 0.53, ranking better than 66.27% of companies in the Utilities - Independent Power Producers industry. Based on this, GuruFocus ranks Pampa Energia SA's financial strength as 6 out of 10, indicating 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. Its operating margin of 26.66% is better than 67.65% of companies in the Utilities - Independent Power Producers industry. Overall, GuruFocus ranks Pampa Energia SA's profitability as strong.
Growth is a critical factor in a company's valuation. Pampa Energia SA's 3-year average revenue growth rate is better than 91.48% of companies in the Utilities - Independent Power Producers industry. Its 3-year average EBITDA growth rate is 63.6%, which ranks better than 88.95% of companies in the industry.
ROIC vs WACC
Another way to determine a company's profitability is to compare its return on invested capital (ROIC) to the weighted average cost of capital (WACC). When the ROIC is higher than the WACC, it suggests the company is creating value for shareholders. For the past 12 months, Pampa Energia SA's ROIC is 12.2, and its WACC is 11.14.
Conclusion
In conclusion, Pampa Energia SA (PAM, Financial) stock appears to be significantly overvalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 88.95% of 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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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
