Knowles Corp (KN, Financial) has recently experienced a daily gain of 5.37%. However, its three-month performance reflects a loss of 16.61%. With a Loss Per Share of 2.16, the question arises: is Knowles (KN) modestly undervalued? This comprehensive analysis aims to answer this question by examining the company's financial health, profitability, growth, and its intrinsic value.
An Overview of Knowles Corp (KN, Financial)
Knowles Corp is a leading manufacturer of micro-acoustic microphones, balanced armature speakers, audio solutions, high-performance capacitors, and radio frequency filtering products. The company operates in three segments: Precision Devices, Medtech & Specialty Audio, and Consumer MEMS Microphones, with the majority of its revenue coming from the latter. As of September 18, 2023, Knowles (KN) has a market cap of $1.40 billion, and its stock price stands at $15.02 per share, compared to its GF Value of $17.02.
Understanding the GF Value of Knowles
The GF Value is an exclusive GuruFocus measure that calculates a stock's intrinsic value based on historical multiples, an internal adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line provides an overview of the stock's fair trading value. If a stock's price is significantly above the GF Value Line, it is overvalued and may offer poor future returns. Conversely, if it is significantly below the GF Value Line, it is undervalued and may provide high future returns. In the case of Knowles, the stock appears to be modestly undervalued.
Financial Strength of Knowles
Investing in companies with poor financial strength can lead to a high risk of permanent capital loss. Therefore, it is crucial to assess a company's financial health before purchasing its shares. Knowles has a cash-to-debt ratio of 0.95, ranking worse than 57.61% of companies in the Hardware industry. However, its overall financial strength is 8 out of 10, indicating strong financial health.
Profitability and Growth of Knowles
Investing in profitable companies generally carries less risk, especially if they demonstrate consistent profitability over the long term. Knowles has been profitable for 6 years over the past 10 years. Its operating margin of 4.27% is better than 51.27% of companies in the Hardware industry, indicating fair profitability.
However, the company's growth is a concern. The 3-year average annual revenue growth rate of Knowles is -3.1%, which ranks worse than 70.93% of companies in the Hardware industry. The 3-year average EBITDA growth rate is 0%, which ranks worse than all companies in the same industry.
Return on Invested Capital vs. Weighted Average Cost of Capital
Comparing a company's return on invested capital (ROIC) and its weighted average cost of capital (WACC) can provide insights into its profitability. For the past 12 months, Knowles's ROIC is 2.42, and its WACC is 12.56, indicating a need for improvement.
Conclusion
In conclusion, Knowles Corp (KN, Financial) appears to be modestly undervalued. The company's strong financial health and fair profitability are positive indicators. However, its growth ranks worse than most companies in the Hardware industry. For a deeper understanding of Knowles's financials, check out its 30-Year Financials here.
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