The stock of Siemens AG (OTCPK:SIEGY, 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 $83.99 per share and the market cap of $134.3 billion, Siemens AG stock appears to be significantly overvalued. GF Value for Siemens AG is shown in the chart below.
Because Siemens AG 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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Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. Siemens AG has a cash-to-debt ratio of 0.52, which which ranks worse than 66% of the companies in Industrial Products industry. The overall financial strength of Siemens AG is 5 out of 10, which indicates that the financial strength of Siemens AG is fair. This is the debt and cash of Siemens AG 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. Siemens AG has been profitable 10 years over the past 10 years. During the past 12 months, the company had revenues of $66.5 billion and earnings of $3.131 a share. Its operating margin of 9.75% better than 68% of the companies in Industrial Products industry. Overall, GuruFocus ranks Siemens AG's profitability as fair. This is the revenue and net income of Siemens AG over the past years:
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Siemens AG is -11.2%, which ranks worse than 86% of the companies in Industrial Products industry. The 3-year average EBITDA growth is -7.7%, which ranks worse than 74% of the companies in Industrial Products 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, Siemens AG's ROIC was 3.66, while its WACC came in at 3.91. The historical ROIC vs WACC comparison of Siemens AG is shown below:
In conclusion, the stock of Siemens AG (OTCPK:SIEGY, 30-year Financials) is believed to be significantly overvalued. The company's financial condition is fair and its profitability is fair. Its growth ranks worse than 74% of the companies in Industrial Products industry. To learn more about Siemens AG stock, you can check out its 30-year Financials here.
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