NOV Inc (NOV, Financial) experienced a daily loss of -5.34%, despite a 3-month gain of 20.42%. With an Earnings Per Share (EPS) of 1.05, we aim to answer the question: is the stock fairly valued? This article provides an in-depth valuation analysis of NOV (NOV), encouraging readers to delve into the following exploration.
Company Introduction
NOV (formerly National Oilwell Varco) is a leading supplier of oil and gas drilling rig equipment and products such as downhole tools, drill pipe, and well casing. The company operates globally, with international markets contributing more than 60% of its annual revenue. With a stock price of $19.42 and a GF Value of $21.11, we aim to provide a profound exploration of the company's value, ingeniously integrating financial assessment with essential company details.
Understanding the GF Value
The GF Value represents the current intrinsic value of a stock derived from our exclusive method. It is calculated based on historical multiples that the stock has traded at, GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of the business performance.
NOV's stock is believed to be fairly valued according to GuruFocus' valuation method. The GF Value estimates the stock's fair value based on three key factors: historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. If the stock's share price is significantly above the GF Value Line, the stock may be overvalued and have poor future returns. On the other hand, if the stock's share price is significantly below the GF Value Line, the stock may be undervalued and have high future returns. At its current price of $19.42 per share, NOV has a market cap of $7.60 billion and the stock is believed to be fairly valued.
Because NOV is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth.
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Financial Strength
Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Thus, it is important to carefully review the financial strength of a company before deciding whether to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company. NOV has a cash-to-debt ratio of 0.25, which is worse than 64.72% of 1026 companies in the Oil & Gas industry. GuruFocus ranks the overall financial strength of NOV at 6 out of 10, which indicates that the financial strength of NOV is fair.
Profitability and Growth
It is less risky to invest in profitable companies, especially those with consistent profitability over the long term. A company with high profit margins is usually a safer investment than those with low profit margins. NOV has been profitable 3 over the past 10 years. Over the past twelve months, the company had a revenue of $8 billion and Earnings Per Share (EPS) of $1.05. Its operating margin is 6.54%, which ranks worse than 55.46% of 979 companies in the Oil & Gas industry. Overall, the profitability of NOV is ranked 4 out of 10, which indicates poor 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 performance of a company's stock. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of NOV is -6.1%, which ranks worse than 79.42% of 860 companies in the Oil & Gas industry. The 3-year average EBITDA growth rate is 0%, which ranks worse than 0% of 826 companies in the Oil & Gas industry.
ROIC vs WACC
Another way to look at the profitability of a company is to compare its return on invested capital (ROIC) and the weighted cost of 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. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, NOV's return on invested capital is 5.38, and its cost of capital is 12.44.
Conclusion
In conclusion, the stock of NOV (NOV, Financial) is believed to be fairly valued. The company's financial condition is fair and its profitability is poor. Its growth ranks worse than 0% of 826 companies in the Oil & Gas industry. To learn more about NOV stock, you can check out its 30-Year Financials here.
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