Ero Copper Corp (ERO, Financial) recently displayed a notable daily gain of 7.52%, contributing to a three-month gain of 46.71%. Despite these impressive short-term gains, a deeper look into the company's financials, particularly its Earnings Per Share (EPS) of 0.66, suggests a potential overvaluation. This analysis aims to determine whether Ero Copper's stock, currently priced at $23.87, is justified or if its market price significantly overshoots its intrinsic value, calculated at $16.02 by GuruFocus' proprietary GF Value metric.
Company Overview
Ero Copper Corp is a key player in the base metals mining sector, focusing primarily on copper production, with gold and silver as by-products. Its operations are strategically divided between its Brazilian mines, including the Caraiba and Xavantina Operations, and the developmental Tucuma Project. The majority of its revenue stems from the Caraiba Operations, which encompass the Pilar and Vermelhos underground mines alongside the Surubim open pit mine. This segment provides a critical perspective on the company's financial health and operational stability.
Understanding GF Value
The GF Value is a calculated metric that aims to predict a stock's intrinsic value based on historical trading multiples, a GuruFocus adjustment factor from past performance, and future business performance estimates. This value serves as a benchmark for investors, indicating whether a stock is overvalued, undervalued, or fairly priced. According to the latest analysis, Ero Copper's stock price significantly exceeds its GF Value, suggesting that the stock may be overvalued, which could lead to lower future returns compared to the company's business growth.
Financial Strength and Stability
An assessment of Ero Copper's financial strength reveals a cash-to-debt ratio of 0.11, which is lower than 89.26% of companies in the Metals & Mining industry. This metric, alongside a fair financial strength rating of 6 out of 10, suggests that while Ero Copper maintains a stable financial posture, there are areas of potential risk that investors should consider, particularly in terms of its debt levels relative to cash on hand.
Profitability and Growth Prospects
Ero Copper has demonstrated fair profitability, with a robust operating margin of 19.13% that ranks well within its industry. The company's profitability, combined with an average annual revenue growth of 10.3%, underscores its capability to sustain and potentially enhance its market position. Moreover, its 3-year average EBITDA growth rate of 24.1% reflects a positive trajectory that could appeal to growth-focused investors.
ROIC vs. WACC: A Comparative Analysis
When comparing Ero Copper's Return on Invested Capital (ROIC) of 5.75 to its Weighted Average Cost of Capital (WACC) of 11.69, it is evident that the company is currently generating a lower return on investment than the cost of its capital, suggesting inefficiencies in its use of invested funds.
Conclusion
In conclusion, while Ero Copper (ERO, Financial) shows substantial market performance in the short term, its current stock price significantly exceeds the GF Value, indicating an overvaluation. Investors should closely monitor the company's financial health and growth metrics to make informed decisions. For a deeper exploration of Ero Copper's financials and to determine if now is the right time to invest, visit the 30-Year Financials of Ero Copper.
To discover other high-quality companies that may deliver above-average returns at reduced risk, consider using the GuruFocus High Quality Low Capex Screener.
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.
