Loma Negra

Loma Negra Cia Industria Argentina SA is assigned a 4-star quantitative star rating, reflecting our opinion that this share class offers a somewhat attractive opportunity for investors. The stock currently trades at a 12% discount to our quantitative fair value estimate of $10.87 per share; however, caution is warranted due to this estimate's high uncertainty rating.

The firm's balance sheet strengthens our valuation estimate. Leverage can enable a company to invest in growth, potentially boosting shareholder value more than equity financing alone. For example, the firm's EBITDA/interest coverage ratio of 2.4 lies in the bottom 30% compared with peers globally. Although the firm's ability to cover interest payments with EBITDA is limited, shares could sharply rebound if economic circumstances change or recent investments reduce fears of default. We believe this is a sign that shares could be undervalued.

Alternatively, the firm's lack of profitability is potentially concerning. Companies with low profitability are often less resilient in recessions and are likely to generate weaker future cash flows for shareholders. The firm's enterprise value to free cash flow ratio of 21.8, a core component of profitability, falls in the bottom 45% compared with peers globally. Although shares look cheap relative to the free cash flow generated by this business, they could represent a value trap. Despite our favorable price/fair value ratio, this characteristic is a negative attribute.

With its quantitative economic moat rating of none, we do not expect this company to materially outearn its cost of capital in the long run. Additionally, the firm's moderate financial health score suggests it is acceptably positioned against adverse economic circumstances.