STMicroelectronics NV (STM, Financial) saw a daily gain of 1.99% and a 3-month loss of -14.05%. With an Earnings Per Share (EPS) (EPS) of 4.64, the question arises: is the stock modestly undervalued? This article aims to answer this question by performing an in-depth valuation analysis of STMicroelectronics NV. Read on to understand our method and findings.
Company Introduction
STMicroelectronics NV, a leader in a variety of semiconductor products, was formed in 1987 as a merger between Italian firm SGS Microelettronica and the nonmilitary business of Thomson Semiconductors in France. The company has a strong presence in analog chips, discrete power semiconductors, microcontrollers, and sensors, particularly in the industrial and automotive industries. With a stock price of $42.9, it is essential to compare this with the GF Value, an estimation of the company's fair value. This comparison provides a foundation for a deeper exploration of the company's value.
Understanding the GF Value
The GF Value is a proprietary measure that provides an overview of a stock's intrinsic value. It is based on three factors: historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. Conversely, if the stock price is significantly below the GF Value Line, its future return will likely be higher.
Based on our valuation method, STMicroelectronics NV appears to be modestly undervalued. This suggests that the long-term return of its stock is likely to be higher than its business growth.
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Assessing Financial Strength
Investing in companies with low financial strength can result in permanent capital loss. Therefore, it is crucial to review a company's financial strength before deciding to buy shares. STMicroelectronics NV has a cash-to-debt ratio of 1.59, which ranks worse than 54.98% of 904 companies in the Semiconductors industry. However, GuruFocus ranks STMicroelectronics NV's financial strength as 9 out of 10, suggesting a strong balance sheet.
Profitability and Growth
Companies that have been consistently profitable over the long term offer less risk to investors. STMicroelectronics NV has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of $17.30 billion and Earnings Per Share (EPS) of $4.64. Its operating margin is 28.21%, which ranks better than 91.4% of 954 companies in the Semiconductors industry. Overall, the profitability of STMicroelectronics NV is ranked 9 out of 10, which indicates strong profitability.
Growth is a crucial factor in a company's valuation. A faster-growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of STMicroelectronics NV is 19.1%, which ranks better than 66.25% of 874 companies in the Semiconductors industry. The 3-year average EBITDA growth rate is 39.8%, which ranks better than 72.29% of 776 companies in the Semiconductors industry.
ROIC vs WACC
Profitability can also be evaluated by comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC). ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. If ROIC exceeds WACC, the company is likely creating value for its shareholders. During the past 12 months, STMicroelectronics NV's ROIC was 34.45 while its WACC was 7.81.
Conclusion
In conclusion, the stock of STMicroelectronics NV appears to be modestly undervalued. The company's financial condition is strong, and its profitability is robust. Its growth ranks better than 72.29% of 776 companies in the Semiconductors industry. To learn more about STMicroelectronics NV stock, you can check out its 30-Year Financials here.
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