Aeroflot Russian Airlines PJSC Stock Is Believed To Be Significantly Overvalued

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Jul 14, 2021
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The stock of Aeroflot Russian Airlines PJSC (MIC:AFLT, 30-year Financials) shows every sign of being 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 ₽68.4 per share and the market cap of ₽163.9 billion, Aeroflot Russian Airlines PJSC stock is estimated to be significantly overvalued. GF Value for Aeroflot Russian Airlines PJSC is shown in the chart below.

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Because Aeroflot Russian Airlines PJSC is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth.

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It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. Aeroflot Russian Airlines PJSC has a cash-to-debt ratio of 0.10, which is worse than 81% of the companies in Transportation industry. The overall financial strength of Aeroflot Russian Airlines PJSC is 1 out of 10, which indicates that the financial strength of Aeroflot Russian Airlines PJSC is poor. This is the debt and cash of Aeroflot Russian Airlines PJSC over the past years:

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It poses less risk to invest in profitable companies, especially those that have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. Aeroflot Russian Airlines PJSC has been profitable 6 over the past 10 years. Over the past twelve months, the company had a revenue of ₽253.8 billion and loss of ₽82.443 a share. Its operating margin is -37.53%, which ranks worse than 89% of the companies in Transportation industry. Overall, GuruFocus ranks the profitability of Aeroflot Russian Airlines PJSC at 5 out of 10, which indicates fair profitability. This is the revenue and net income of Aeroflot Russian Airlines PJSC over the past years:

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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 performance of a company’s stock. 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 Aeroflot Russian Airlines PJSC is -17.9%, which ranks worse than 82% of the companies in Transportation industry. The 3-year average EBITDA growth rate is -44.3%, which ranks in the bottom 10% of the companies in Transportation industry.

Another way to evaluate a company’s profitability is to compare its return on invested capital (ROIC) to its weighted 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 ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Aeroflot Russian Airlines PJSC’s ROIC was -7.14, while its WACC came in at 6.64. The historical ROIC vs WACC comparison of Aeroflot Russian Airlines PJSC is shown below:

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In short, Aeroflot Russian Airlines PJSC (MIC:AFLT, 30-year Financials) stock is believed to be significantly overvalued. The company's financial condition is poor and its profitability is fair. Its growth ranks in the bottom 10% of the companies in Transportation industry. To learn more about Aeroflot Russian Airlines PJSC stock, you can check out its 30-year Financials here.

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