POSCO Holdings Inc (PKX, Financial) has recently been in the spotlight with a daily gain of 4.86% and a significant 3-month gain of 50.32%. The company's Earnings Per Share (EPS) stands at 3.12. However, the question remains: is the stock significantly overvalued? This article aims to provide an in-depth analysis of POSCO Holdings' current valuation and its potential implications on future returns.
A Snapshot of POSCO Holdings Inc (PKX, Financial)
POSCO Holdings operates as a holding company through its subsidiaries, with diversified business operations. The company's segments include the production and sale of steel products, provision of infrastructure and related services, trading and natural resources development activities, and planning, designing, and construction of industrial plants, civil engineering projects, and buildings. It also focuses on power generation and information technology and operational technology services, as well as the manufacturing and sale of energy-related and other industrial materials.
The company's stock price currently stands at $113.92, significantly higher than its GF Value of $62.75. With a market cap of $34.60 billion, the stock appears to be significantly overvalued, which may impact its future returns. The income breakdown of POSCO Holdings is as follows:
Decoding the GF Value
The GF Value is a unique measure of a stock's intrinsic value, calculated based on historical multiples, a GuruFocus adjustment factor based on the company's past returns and growth, and future business performance estimates. The GF Value Line provides an overview of the fair value that the stock should ideally be traded at.
According to our valuation method, POSCO Holdings (PKX, Financial) appears to be significantly overvalued. If the stock price is significantly above the GF Value Line, it suggests that the stock is overvaliced, and its future returns might be poor. However, if it's significantly below the GF Value Line, the stock might be undervalued, promising higher future returns. Given POSCO Holdings' current price of $113.92 per share and a market cap of $34.60 billion, the stock appears to be significantly overvalued.
As a result, the long-term return of POSCO Holdings' stock is likely to be much lower than its future business growth.
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Assessing POSCO Holdings' Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's crucial to review a company's financial strength before deciding 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. POSCO Holdings has a cash-to-debt ratio of 0.69, which ranks better than 63.07% of 593 companies in the Steel industry. Based on this, GuruFocus ranks POSCO Holdings's financial strength as 6 out of 10, suggesting a fair balance sheet.
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 profitability usually dictates 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 $60.60 billion and Earnings Per Share (EPS) of $3.12. Its operating margin is 3.29%, which ranks worse than 55.41% of 601 companies in the Steel industry. Overall, the profitability of POSCO Holdings is ranked 7 out of 10, which indicates fair profitability.
Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long-term stock performance of a company. A faster-growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of POSCO Holdings is 10%, which ranks worse than 54% of 587 companies in the Steel industry. The 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 Comparison
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 ROIC exceeds the WACC, 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.
The historical ROIC vs WACC comparison of POSCO Holdings is shown below:
Conclusion
In conclusion, the stock of POSCO Holdings (PKX, Financial) appears to be significantly overvalued. The company's financial condition is fair, and its profitability is also fair. However, 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.
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