On July 25, 2023, ON Semiconductor Corp (ON, Financial) recorded a daily gain of 3.54%, with its stock price reaching $101.15. The company's current market cap stands at $43.7 billion, with reported sales of $8.3 billion. However, according to the GuruFocus GF Value, the intrinsic value of ON Semiconductor is estimated to be $63.07, indicating that the stock is significantly overvalued.
ON Semiconductor is a global supplier of power semiconductors and sensors, primarily catering to the automotive and industrial markets. As the second-largest power chipmaker worldwide and the top supplier of image sensors for the automotive sector, ON Semiconductor has a strong presence in its industry. The company is increasingly focusing on emerging applications such as electric vehicles, autonomous vehicles, industrial automation, and renewable energy.
GF Value of ON Semiconductor
The GF Value is a unique valuation model developed by GuruFocus, which estimates a stock's intrinsic value based on historical trading multiples, an adjustment factor from GuruFocus for past performance and growth, and future business performance estimates. According to this model, ON Semiconductor Corp (ON, Financial) is significantly overvalued, as its current stock price far exceeds the estimated fair value.
When a stock is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth. The GF Value chart of ON Semiconductor illustrates this situation.
Financial Strength of ON Semiconductor
Investors must carefully review a company’s financial strength before deciding to buy shares. A good initial perspective on the company’s financial health can be obtained by looking at the cash-to-debt ratio and interest coverage. ON Semiconductor's cash-to-debt ratio of 0.77 ranks worse than 69.36% of companies in the Semiconductors industry. Despite this, GuruFocus ranks ON Semiconductor’s financial strength as 8 out of 10, indicating a strong balance sheet.
Profitability of ON Semiconductor
Investing in profitable companies, especially those with consistent long-term profitability, is often less risky. ON Semiconductor has been profitable for 10 out of the past 10 years. Over the past twelve months, the company had a revenue of $8.3 billion and Earnings Per Share (EPS) of $4.1. Its operating margin of 32.93% ranks better than 94.12% of companies in the Semiconductors industry, indicating strong profitability.
Growth of ON Semiconductor
ON Semiconductor’s 3-year average revenue growth rate is worse than 50.12% of companies in the Semiconductors industry. However, its 3-year average EBITDA growth rate of 40% ranks better than 72.56% of companies in the Semiconductors industry, indicating a promising growth trajectory.
ROIC vs WACC
Comparing a company’s return on invested capital (ROIC) to its weighted cost of capital (WACC) can provide valuable insights into its profitability. ON Semiconductor’s ROIC was 29.86 over the past 12 months, while its WACC was 10.81. This indicates that the company is creating value for shareholders, as its ROIC is higher than the WACC.
Conclusion
In conclusion, while ON Semiconductor Corp (ON, Financial) exhibits strong financial strength and profitability, the stock appears to be significantly overvalued according to the GuruFocus GF Value. For a more detailed financial analysis, check out ON Semiconductor's 30-Year Financials here.
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