On July 28, 2023, Newell Brands Inc (NWL, Financial) reported a daily stock change of 8.93%, with a Loss Per Share of $0.29. Given these figures, the question arises: could this stock be a potential value trap? In this analysis, we delve into the company's valuation, financial strength, profitability, and growth to answer this pressing question.
A Snapshot of Newell Brands Inc (NWL, Financial)
Newell Brands Inc is a globally recognized consumer goods company based in the US. The company operates through five segments: Commercial Solutions, Home Appliances, Home Solutions, Learning and Development, and Outdoor and Recreation. The Learning and Development segment, offering baby gear, infant care products, writing instruments, art products, and labeling solutions, drives the majority of the firm's revenue.
Despite a current stock price of $11.17, the GF Value, a proprietary measure of the stock's intrinsic value, estimates a fair value of $18.25 for Newell Brands. This discrepancy prompts a deeper investigation into the value of the company.
Understanding the GF Value of Newell Brands (NWL, Financial)
The GF Value is a unique measure of a stock's intrinsic value, based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line indicates the ideal fair trading value of the stock. If the stock price significantly deviates from the GF Value Line, it may be overvalued or undervalued, impacting its future return.
Based on this calculation, Newell Brands (NWL, Financial) is possibly a value trap, indicating caution for potential investors. With a market cap of $4.6 billion, the current stock price of $11.17 per share is significantly below the GF Value Line, suggesting a higher future return but also potential risks.
Financial Strength of Newell Brands
Investing in companies with poor financial strength can lead to a higher risk of permanent capital loss. Hence, it's crucial to review a company's financial strength before investing. Newell Brands has a cash-to-debt ratio of 0.04, lower than 89.08% of companies in the Consumer Packaged Goods industry, indicating poor financial strength.
Profitability and Growth of Newell Brands
Investing in profitable companies typically carries less risk. Newell Brands has been profitable 8 out of the past 10 years, with revenues of $8.9 billion in the past 12 months and an operating margin of 6.55%, outperforming 60.58% of companies in the Consumer Packaged Goods industry. However, the growth of Newell Brands is a cause for concern, with a 3-year average annual revenue growth rate of -0.4%.
Another indicator of profitability is the comparison of a company's return on invested capital (ROIC) and the weighted average cost of capital (WACC). For the past 12 months, Newell Brands's ROIC was 3.03, lower than its WACC of 5.9, indicating underperformance.
Is Newell Brands a Value Trap?
Despite its seemingly undervalued status, Newell Brands exhibits signs of a potential value trap. With a Piotroski F-score of 2 out of 9, there may be concerns about its profitability, funding, and efficiency. Additionally, the Altman Z-score of 0.74 places the company in the distress zone, indicating an increased bankruptcy risk.
Conclusion
In conclusion, Newell Brands (NWL, Financial) appears to be a potential value trap. Despite fair profitability, the company's poor financial condition and underwhelming growth suggest caution for potential investors. To learn more about Newell Brands stock, check out its 30-Year Financials here.
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