The stock of DuPont de Nemours (NYSE:DD, 30-year Financials) is estimated to be modestly overvalued, 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 $81.68 per share and the market cap of $43.5 billion, DuPont de Nemours stock shows every sign of being modestly overvalued. GF Value for DuPont de Nemours is shown in the chart below.
Because DuPont de Nemours is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth, which averaged 8.2% over the past five years.
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Since investing in companies with low financial strength could result in permanent capital loss, investors must carefully review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. DuPont de Nemours has a cash-to-debt ratio of 0.51, which ranks in the middle range of the companies in Chemicals industry. Based on this, GuruFocus ranks DuPont de Nemours's financial strength as 5 out of 10, suggesting fair balance sheet. This is the debt and cash of DuPont de Nemours 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. DuPont de Nemours has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of $19.2 billion and earnings of $5.72 a share. Its operating margin is 9.63%, which ranks in the middle range of the companies in Chemicals industry. Overall, GuruFocus ranks the profitability of DuPont de Nemours at 6 out of 10, which indicates fair profitability. This is the revenue and net income of DuPont de Nemours over the past years:
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of DuPont de Nemours is 8.2%, which ranks better than 72% of the companies in Chemicals industry. The 3-year average EBITDA growth is -34.1%, which ranks in the bottom 10% of the companies in Chemicals industry.
Another way to look at the profitability of a company is to compare its return on invested capital and the weighted cost of capital. 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. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, DuPont de Nemours's return on invested capital is 3.16, and its cost of capital is 8.67. The historical ROIC vs WACC comparison of DuPont de Nemours is shown below:
To conclude, DuPont de Nemours (NYSE:DD, 30-year Financials) stock is estimated to be modestly overvalued. The company's financial condition is fair and its profitability is fair. Its growth ranks in the bottom 10% of the companies in Chemicals industry. To learn more about DuPont de Nemours stock, you can check out its 30-year Financials here.
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