The stock of Incitec Pivot (OTCPK:ICPVF, 30-year Financials) appears to be modestly undervalued, 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 $2.15 per share and the market cap of $4.1 billion, Incitec Pivot stock gives every indication of being modestly undervalued. GF Value for Incitec Pivot is shown in the chart below.
Because Incitec Pivot is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth, which averaged 3.5% over the past three years and is estimated to grow 1.91% annually over the next three to five years.
Link: These companies may deliever higher future returns at reduced risk.
Since investing in companies with low financial strength could result in permanent capital loss, investors must carefully review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. Incitec Pivot has a cash-to-debt ratio of 0.26, which ranks worse than 76% of the companies in Chemicals industry. Based on this, GuruFocus ranks Incitec Pivot's financial strength as 4 out of 10, suggesting poor balance sheet. This is the debt and cash of Incitec Pivot over the past years:
It poses less risk to invest in profitable companies, especially those that have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. Incitec Pivot has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $2.7 billion and earnings of $0.047 a share. Its operating margin is 6.90%, which ranks in the middle range of the companies in Chemicals industry. Overall, GuruFocus ranks the profitability of Incitec Pivot at 6 out of 10, which indicates fair profitability. This is the revenue and net income of Incitec Pivot 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. Incitec Pivot's 3-year average revenue growth rate is in the middle range of the companies in Chemicals industry. Incitec Pivot's 3-year average EBITDA growth rate is -7.1%, which ranks worse than 73% of the companies in Chemicals 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, Incitec Pivot's ROIC is 2.56 while its WACC came in at 7.66. The historical ROIC vs WACC comparison of Incitec Pivot is shown below:
In closing, Incitec Pivot (OTCPK:ICPVF, 30-year Financials) stock is estimated to be modestly undervalued. The company's financial condition is poor and its profitability is fair. Its growth ranks worse than 73% of the companies in Chemicals industry. To learn more about Incitec Pivot stock, you can check out its 30-year Financials here.
To find out the high quality companies that may deliever above average returns, please check out GuruFocus High Quality Low Capex Screener.
