POSCO Holdings Inc (PKX, Financial) recently experienced a daily gain of 4.34% and a 3-month gain of 36.78%. With an Earnings Per Share (EPS) (EPS) of 3.12, the question arises: is the stock significantly overvalued? This article aims to answer that question through a comprehensive valuation analysis. Keep reading for a detailed exploration of POSCO Holdings' intrinsic value.
Company Introduction
POSCO Holdings Inc is a holding company that operates through its subsidiaries. The company's operating segments include the production and sale of steel products, the provision of infrastructure and related services, trading and natural resources development activities, planning, designing, and construction of industrial plants, civil engineering projects, and buildings. It also includes power generation and information technology and operational technology services, manufacturing and sale of energy-related and other industrial materials. Comparing the stock price with the GF Value, which is an estimation of fair value, can provide a deeper understanding of the company's value.
Understanding the GF Value
The GF Value represents the current intrinsic value of a stock derived from our exclusive method. It is calculated based on historical multiples (PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow) that the stock has traded at, a GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of the business performance. The GF Value Line on our summary page provides an overview of the fair value that the stock should be traded at.
According to our analysis, POSCO Holdings (PKX, Financial) stock is estimated to be significantly overvalued. At its current price of $109.38 per share, POSCO Holdings has a market cap of $33.20 billion. 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.
Given that POSCO Holdings is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth.
Financial Strength
Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid this, 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 understand its financial strength. POSCO Holdings has a cash-to-debt ratio of 0.69, which ranks better than 63.24% of 593 companies in the Steel industry. The overall financial strength of POSCO Holdings is 6 out of 10, which indicates that the financial strength of POSCO Holdings is fair.
Profitability and Growth
Investing in profitable companies, especially those that have demonstrated consistent profitability over the long term, poses less risk. A company with high profit margins is also typically a safer investment than one with low profit margins. POSCO Holdings has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $60.60 billion and Earnings Per Share (EPS) of $3.12. Its operating margin is 3.29%, which ranks worse than 55.37% of 596 companies in the Steel industry. Overall, GuruFocus ranks the profitability of POSCO Holdings at 7 out of 10, which indicates fair profitability.
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. POSCO Holdings's 3-year average revenue growth rate is worse than 54% of 587 companies in the Steel industry. POSCO Holdings's 3-year average EBITDA growth rate is 4.9%, which ranks worse than 69.22% of 510 companies in the Steel industry.
ROIC vs WACC
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, POSCO Holdings's ROIC is 4.24 while its WACC came in at 8.35.
Conclusion
In conclusion, the stock of POSCO Holdings (PKX, Financial) is estimated to be significantly overvalued. The company's financial condition is fair and its profitability is fair. Its growth ranks worse than 69.22% of 510 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.
