The stock of Anglogold Ashanti (NYSE:AU, 30-year Financials) is estimated to be fairly valued, 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 $22.98 per share and the market cap of $9.6 billion, Anglogold Ashanti stock is believed to be fairly valued. GF Value for Anglogold Ashanti is shown in the chart below.
Because Anglogold Ashanti is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which averaged 13.7% over the past three years and is estimated to grow 2.67% annually over the next three to five years.
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Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Thus, it is important to carefully review the financial strength of a company before deciding whether to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company. Anglogold Ashanti has a cash-to-debt ratio of 0.64, which is worse than 76% of the companies in Metals & Mining industry. GuruFocus ranks the overall financial strength of Anglogold Ashanti at 6 out of 10, which indicates that the financial strength of Anglogold Ashanti is fair. This is the debt and cash of Anglogold Ashanti over the past years:
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Anglogold Ashanti has been profitable 5 over the past 10 years. Over the past twelve months, the company had a revenue of $4.4 billion and earnings of $2.27 a share. Its operating margin is 32.96%, which ranks better than 88% of the companies in Metals & Mining industry. Overall, the profitability of Anglogold Ashanti is ranked 6 out of 10, which indicates fair profitability. This is the revenue and net income of Anglogold Ashanti 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 Anglogold Ashanti is 13.7%, which ranks better than 77% of the companies in Metals & Mining industry. The 3-year average EBITDA growth rate is 30.5%, which ranks better than 74% of the companies in Metals & Mining 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, Anglogold Ashanti's return on invested capital is 15.63, and its cost of capital is 11.94. The historical ROIC vs WACC comparison of Anglogold Ashanti is shown below:
In short, the stock of Anglogold Ashanti (NYSE:AU, 30-year Financials) is estimated to be fairly valued. The company's financial condition is fair and its profitability is fair. Its growth ranks better than 74% of the companies in Metals & Mining industry. To learn more about Anglogold Ashanti stock, you can check out its 30-year Financials here.
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