The stock of Orkla ASA (OTCPK:ORKLY, 30-year Financials) gives every indication of being fairly valued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the 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. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $10.245 per share and the market cap of $10.2 billion, Orkla ASA stock appears to be fairly valued. GF Value for Orkla ASA is shown in the chart below.
Because Orkla ASA is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which averaged 6.6% over the past three years and is estimated to grow 3.06% annually over the next three to five years.
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It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. Orkla ASA has a cash-to-debt ratio of 0.11, which is worse than 79% of the companies in the industry of Consumer Packaged Goods. The overall financial strength of Orkla ASA is 6 out of 10, which indicates that the financial strength of Orkla ASA is fair. This is the debt and cash of Orkla ASA over the past years:
It poses less risk to invest in profitable companies, especially those that have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. Orkla ASA has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of $5.3 billion and earnings of $0.514 a share. Its operating margin is 11.69%, which ranks better than 74% of the companies in the industry of Consumer Packaged Goods. Overall, GuruFocus ranks the profitability of Orkla ASA at 7 out of 10, which indicates fair profitability. This is the revenue and net income of Orkla ASA over the past years:
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 Orkla ASA is 6.6%, which ranks better than 67% of the companies in the industry of Consumer Packaged Goods. The 3-year average EBITDA growth rate is 9.5%, which ranks in the middle range of the companies in the industry of Consumer Packaged Goods.
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, Orkla ASA's ROIC is 8.36 while its WACC came in at 0.95. The historical ROIC vs WACC comparison of Orkla ASA is shown below:
To conclude, Orkla ASA (OTCPK:ORKLY, 30-year Financials) stock appears to be fairly valued. The company's financial condition is fair and its profitability is fair. Its growth ranks in the middle range of the companies in the industry of Consumer Packaged Goods. To learn more about Orkla ASA stock, you can check out its 30-year Financials here.
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