In This Article:
- By GF Value
The stock of Canadian Pacific Railway (NYSE:CP, 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 $79.91 per share and the market cap of $53.1 billion, Canadian Pacific Railway stock is believed to be significantly overvalued. GF Value for Canadian Pacific Railway is shown in the chart below.
Because Canadian Pacific Railway is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 8.2% over the past three years and is estimated to grow 4.61% annually over the next three to five years.
Link: These companies may deliever higher future returns at reduced risk.
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. Canadian Pacific Railway has a cash-to-debt ratio of 0.04, which is in the bottom 10% of the companies in Transportation industry. The overall financial strength of Canadian Pacific Railway is 4 out of 10, which indicates that the financial strength of Canadian Pacific Railway is poor. This is the debt and cash of Canadian Pacific Railway 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. Canadian Pacific Railway has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $5.9 billion and earnings of $2.999 a share. Its operating margin is 43.44%, which ranks better than 97% of the companies in Transportation industry. Overall, the profitability of Canadian Pacific Railway is ranked 9 out of 10, which indicates strong profitability. This is the revenue and net income of Canadian Pacific Railway over the past years: