The stock of Ingredion (NYSE:INGR, 30-year Financials) gives every indication of being 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 $96.36 per share and the market cap of $6.5 billion, Ingredion stock shows every sign of being modestly overvalued. GF Value for Ingredion is shown in the chart below.
Because Ingredion is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth, which averaged 1.4% over the past three years and is estimated to grow 1.33% annually over the next three to five years.
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. Ingredion has a cash-to-debt ratio of 0.25, which is in the middle range of the companies in the industry of Consumer Packaged Goods. The overall financial strength of Ingredion is 5 out of 10, which indicates that the financial strength of Ingredion is fair. This is the debt and cash of Ingredion over the past years:
It is less risky to invest in profitable companies, especially those with consistent profitability over long term. A company with high profit margins is usually a safer investment than those with low profit margins. Ingredion has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $6.1 billion and earnings of $0.38 a share. Its operating margin is 11.65%, which ranks better than 74% of the companies in the industry of Consumer Packaged Goods. Overall, the profitability of Ingredion is ranked 7 out of 10, which indicates fair profitability. This is the revenue and net income of Ingredion 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 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 Ingredion is 1.4%, which ranks in the middle range of the companies in the industry of Consumer Packaged Goods. The 3-year average EBITDA growth rate is -6.8%, which ranks worse than 73% of the companies in the industry of Consumer Packaged Goods.
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average 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. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Ingredion's return on invested capital is 2.54, and its cost of capital is 5.58. The historical ROIC vs WACC comparison of Ingredion is shown below:
To conclude, the stock of Ingredion (NYSE:INGR, 30-year Financials) is believed to be modestly overvalued. The company's financial condition is fair and its profitability is fair. Its growth ranks worse than 73% of the companies in the industry of Consumer Packaged Goods. To learn more about Ingredion stock, you can check out its 30-year Financials here.
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