The stock of Schneider Electric SE (OTCPK:SBGSF, 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 $166.7857 per share and the market cap of $92.4 billion, Schneider Electric SE stock shows every sign of being significantly overvalued. GF Value for Schneider Electric SE is shown in the chart below.
Because Schneider Electric SE is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 1% over the past three years and is estimated to grow 3.03% annually over the next three to five years.
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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. Schneider Electric SE has a cash-to-debt ratio of 0.66, which is in the middle range of the companies in Industrial Products industry. The overall financial strength of Schneider Electric SE is 6 out of 10, which indicates that the financial strength of Schneider Electric SE is fair. This is the debt and cash of Schneider Electric SE over the past years:
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Schneider Electric SE has been profitable 10 years over the past 10 years. During the past 12 months, the company had revenues of $29.6 billion and earnings of $4.509 a share. Its operating margin of 14.69% better than 83% of the companies in Industrial Products industry. Overall, GuruFocus ranks Schneider Electric SE's profitability as fair. This is the revenue and net income of Schneider Electric SE 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. Schneider Electric SE's 3-year average revenue growth rate is in the middle range of the companies in Industrial Products industry. Schneider Electric SE's 3-year average EBITDA growth rate is 2.5%, which ranks in the middle range of the companies in Industrial 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, Schneider Electric SE's ROIC is 8.12 while its WACC came in at 4.17. The historical ROIC vs WACC comparison of Schneider Electric SE is shown below:
In closing, the stock of Schneider Electric SE (OTCPK:SBGSF, 30-year Financials) shows every sign of being significantly overvalued. The company's financial condition is fair and its profitability is fair. Its growth ranks in the middle range of the companies in Industrial Products industry. To learn more about Schneider Electric SE stock, you can check out its 30-year Financials here.
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