LG Display Co Ltd (LPL, Financial) has seen a daily gain of 4.64%, but a 3-month loss of -22.03% as of September 22, 2023. The company reported a Loss Per Share of $5.28. This raises the question: Is the stock modestly undervalued? In this article, we will delve into the valuation analysis of LG Display Co (LPL) to answer this question. We encourage readers to delve into the following analysis for a comprehensive understanding of the company's value.
A Snapshot of LG Display Co Ltd (LPL, Financial)
LG Display Co is a South Korea-based company principally engaged in developing, manufacturing, and selling TFT-LCD and OLED display panels. The company's products consist of panels for notebook computers, monitors, televisions, smartphones, tablets, and others. With a share price of $5.08, the company has a market cap of $3.60 billion. The GF Value, an estimation of fair value, is $5.86, indicating that the stock might be modestly undervalued.
Understanding the GF Value
The GF Value is an intrinsic value of a stock derived from GuruFocus's unique method. It considers three key factors: historical multiples that the stock has traded at, a GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of business performance. The GF Value Line represents the fair value that the stock should ideally trade at.
Based on this method, LG Display Co appears to be modestly undervalued. If the stock's share price is significantly above the GF Value Line, it may be overvalued, resulting in poor future returns. Conversely, if the stock's share price is significantly below the GF Value Line, it may be undervalued, promising higher future returns. Considering LG Display Co's current price of $5.08 per share and a market cap of $3.60 billion, the stock appears to be modestly undervalued.
As LG Display Co is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth.
Assessing Financial Strength
Investing in companies with poor financial strength can lead to permanent capital loss. Therefore, it's crucial to review a company's financial strength before investing. A good starting point is to look at the cash-to-debt ratio. LG Display Co's ratio stands at 0.14, which is worse than 92% of 2374 companies in the Hardware industry. The overall financial strength of LG Display Co is ranked 4 out of 10, indicating poor financial strength.
Profitability and Growth
Investing in profitable companies, especially those consistently profitable over the long term, is less risky. A company with high profitability margins is usually a safer investment than those with low profit margins. LG Display Co has been profitable 6 times over the past 10 years. Over the past twelve months, the company had a revenue of $17.50 billion and a Loss Per Share of $5.28. Its operating margin of -14.64% ranks worse than 84.88% of 2460 companies in the Hardware industry, indicating fair profitability.
Growth is one of the most important factors in the valuation of a company. Companies that grow faster create more value for shareholders, especially if that growth is profitable. LG Display Co's average annual revenue growth is 3.7%, which ranks worse than 52.08% of 2335 companies in the Hardware industry. However, its 3-year average EBITDA growth is 43.2%, which ranks better than 85.93% of 1962 companies in the Hardware industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) is another way to evaluate its profitability. The ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. The 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, LG Display Co's ROIC was -9.25, while its WACC came in at 5.15.
Conclusion
In conclusion, the stock of LG Display Co (LPL, Financial) appears to be modestly undervalued. The company's financial condition is poor, but its profitability is fair. Its growth ranks better than 85.93% of 1962 companies in the Hardware industry. To learn more about LG Display Co stock, you can check out its 30-Year Financials here.
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