Olin Corp (OLN, Financial), despite a daily loss of 9.03% and a 3-month loss of 24.07%, reported Earnings Per Share (EPS) (EPS) of 5.9. This raises the question: is the stock modestly undervalued? This article aims to answer that question through a comprehensive valuation analysis of Olin Corp. We encourage you to delve into the following analysis for a deeper understanding of Olin's intrinsic value.
Introduction to Olin Corp
Olin Corp is a leading manufacturer and seller of a variety of chemicals and chemical-based products. The company's operations are divided into three segments based on product type. The majority of revenue comes from the Chlor alkali products and Vinyls segment, which sells chlorine and caustic soda used in various industries. The Epoxy segment sells epoxy resins used in paints and coatings, and the Winchester segment sells sporting ammunition and accessories under the Winchester brand. The majority of the company's revenue is generated in the United States.
Despite a current stock price of $42.12, the GF Value, an estimation of the fair value, stands at $50.85. This discrepancy sets the stage for a deeper exploration 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. The GF Value Line on our summary page gives an overview of the fair value at which the stock should be traded. It is calculated based on three factors:
- Historical multiples (PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow) at which the stock has traded.
- GuruFocus adjustment factor based on the company's past returns and growth.
- Future estimates of the business performance.
According to GuruFocus Value calculation, the stock of Olin (OLN, Financial) is estimated to be modestly undervalued. The stock should be traded at its fair value, which is determined by historical multiples, past business growth, and analyst estimates of future business performance. 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. Currently, at a price of $42.12 per share and a market cap of $5.30 billion, Olin stock is estimated to be modestly undervalued. As Olin is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth.
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Financial Strength of Olin
Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid this, an investor must 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 great ways to understand its financial strength. Olin has a cash-to-debt ratio of 0.05, which ranks worse than 93.63% of 1507 companies in the Chemicals industry. The overall financial strength of Olin is 5 out of 10, indicating fair financial strength.
Profitability and Growth of Olin
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. Olin has been profitable 6 times over the past 10 years. Over the past twelve months, the company had a revenue of $7.80 billion and Earnings Per Share (EPS) of $5.9. Its operating margin is 15.46%, which ranks better than 82.6% of 1523 companies in the Chemicals industry. Overall, GuruFocus ranks the profitability of Olin at 7 out of 10, indicating fair profitability.
Growth is 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. On the other hand, if a company's revenue and earnings are declining, the value of the company will decrease. Olin's 3-year average revenue growth rate is better than 74.41% of 1450 companies in the Chemicals industry. Olin's 3-year average EBITDA growth rate is 48.7%, which ranks better than 89.57% of 1342 companies in the Chemicals industry.
ROIC Vs WACC
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted 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 is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Olin's ROIC was 15.14, while its WACC came in at 11.44.
Conclusion
Overall, Olin (OLN, Financial) stock is estimated to be modestly undervalued. The company's financial condition is fair, and its profitability is fair. Its growth ranks better than 89.57% of 1342 companies in the Chemicals industry. To learn more about Olin stock, you can check out its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
