The stock of Imperial Brands PLC (OTCPK:IMBBF, 30-year Financials) is believed to be significantly overvalued, 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 $22.02 per share and the market cap of $20.5 billion, Imperial Brands PLC stock is estimated to be significantly overvalued. GF Value for Imperial Brands PLC is shown in the chart below.
Because Imperial Brands PLC is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 2.9% over the past five years.
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Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company’s financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. Imperial Brands PLC has a cash-to-debt ratio of 0.07, which which ranks worse than 85% of the companies in Tobacco Products industry. The overall financial strength of Imperial Brands PLC is 4 out of 10, which indicates that the financial strength of Imperial Brands PLC is poor. This is the debt and cash of Imperial Brands PLC 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. Imperial Brands PLC has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $44.8 billion and earnings of $3.977 a share. Its operating margin is 10.00%, which ranks in the middle range of the companies in Tobacco Products industry. Overall, the profitability of Imperial Brands PLC is ranked 7 out of 10, which indicates fair profitability. This is the revenue and net income of Imperial Brands PLC over the past years:
Growth is probably one of the most important factors in the valuation of a company. GuruFocus’ research has found that growth is closely correlated with the long-term performance of a company’s stock. If a company’s business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. Imperial Brands PLC’s 3-year average revenue growth rate is in the middle range of the companies in Tobacco Products industry. Imperial Brands PLC’s 3-year average EBITDA growth rate is -2.1%, which ranks in the middle range of the companies in Tobacco Products industry.
One can also evaluate a company’s profitability 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. During the past 12 months, Imperial Brands PLC’s ROIC is 11.14 while its WACC came in at 5.23. The historical ROIC vs WACC comparison of Imperial Brands PLC is shown below:
Overall, the stock of Imperial Brands PLC (OTCPK:IMBBF, 30-year Financials) is believed to be significantly overvalued. The company's financial condition is poor and its profitability is fair. Its growth ranks in the middle range of the companies in Tobacco Products industry. To learn more about Imperial Brands PLC stock, you can check out its 30-year Financials here.
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