POSCO Holdings Inc (PKX, Financial) has seen a daily gain of 4.63% and a 3-month gain of 52.57%. Its Earnings Per Share (EPS) stands at 5.15. However, the key question remains: Is the stock significantly overvalued? This article delves into a comprehensive valuation analysis of POSCO Holdings, providing insights into its intrinsic value, financial strength, profitability, and growth prospects.
A Snapshot of POSCO Holdings
POSCO Holdings Inc is a holding company operating through various subsidiaries. The company's operating segments include Steel Production, Green Infrastructure Business, Green Materials and Energy, and Others. The Steel segment involves the production and sale of steel products. The Green Infrastructure Business provides infrastructure and related services, with operations in trading, natural resources development, industrial plant construction, and IT/OT services. The Green Materials and Energy segment manufactures and sells energy-related and other industrial materials.
The company's current stock price is $112.25 per share, with a market cap of $34.10 billion. However, the estimated fair value (GF Value) stands at $61.29, indicating a significant overvaluation. The income breakdown of POSCO Holdings is illustrated in the chart below:
Understanding the GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It is calculated based on historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line on our summary page provides an overview of the stock's ideal fair trading value.
According to GuruFocus Value calculation, the stock of POSCO Holdings (PKX, Financial) is believed to be significantly overvalued. 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. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
Considering POSCO Holdings' significant overvaluation, the long-term return of its stock is likely to be much lower than its future business growth.
Link: These companies may deliver higher future returns at reduced risk.
Examining POSCO Holdings' Financial Strength
Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid this, it's crucial to review a company's financial strength before deciding to purchase shares. Two key metrics for understanding a company's financial strength are the cash-to-debt ratio and interest coverage.
POSCO Holdings has a cash-to-debt ratio of 0.7, which ranks better than 63.97% of 594 companies in the Steel industry. The overall financial strength of POSCO Holdings is 6 out of 10, indicating fair financial strength.
This is the debt and cash of POSCO Holdings over the past years:
Profitability and Growth of POSCO Holdings
Companies that have been consistently profitable over the long term offer less risk for investors. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. POSCO Holdings has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $63.10 billion and Earnings Per Share (EPS) of $5.15. Its operating margin is 4.09%, which ranks worse than 51.52% of 592 companies in the Steel industry. Overall, the profitability of POSCO Holdings is ranked 7 out of 10, indicating fair profitability.
One of the most important factors in the valuation of a company is growth. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of POSCO Holdings is 10%, which ranks worse than 53.95% of 582 companies in the Steel industry. The 3-year average EBITDA growth is 4.9%, which ranks worse than 69.37% of 506 companies in the Steel industry.
ROIC vs 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. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, POSCO Holdings's ROIC is 4.61, and its WACC is 8.38.
The historical ROIC vs WACC comparison of POSCO Holdings is shown below:
Conclusion
Overall, POSCO Holdings (PKX, Financial) stock is believed to be significantly overvalued. The company's financial condition is fair, and its profitability is fair. Its growth ranks worse than 69.37% of 506 companies in the Steel industry. To learn more about POSCO Holdings stock, you can check out its 30-Year Financials here.
To find out the high-quality companies that may deliver above-average returns, please check out GuruFocus High Quality Low Capex Screener.
