International Paper Co (IP, Financial) recently witnessed a 5.77% daily gain, with an Earnings Per Share (EPS) of 3.61. But does this indicate an undervalued stock? This article aims to answer that question by providing an in-depth analysis of the company's value based on the proprietary GF Value, among other financial metrics. Keep reading to understand the valuation better and make informed investment decisions.
Introduction to International Paper Co
International Paper Co (IP, Financial) is a prominent manufacturer of packaging products and cellulose fibers. Accounting for approximately one-third of the North American corrugated packaging market, the company has a significant presence in North America, contributing to over three-fourths of its sales. Although it operates in Brazil, Russia, India, and China, its primary market is North America, serving various end markets, including industrial, consumer products, and manufacturing. Currently, International Paper Co trades at $35.72 per share with a market cap of $12.4 billion, significantly lower than its GF Value of $53.92.
Understanding the GF Value
The GF Value is a unique measure of a stock's intrinsic value, computed based on historical trading multiples, a proprietary GuruFocus adjustment factor, and future business performance estimates. The GF Value Line represents the stock's ideal fair trading value. If a stock's price is significantly above the GF Value Line, it is likely overvalued with poor future returns. Conversely, if it is significantly below the GF Value Line, the stock may be undervalued, promising high future returns.
International Paper Co's stock is considered significantly undervalued according to the GF Value. The stock's current price of $35.72 per share and a market cap of $12.4 billion is believed to be below its intrinsic value. This undervaluation suggests that the long-term return of its stock is likely to be much higher than its business growth.
Financial Strength of International Paper Co
Investing in companies with poor financial strength carries a higher risk of permanent capital loss. Therefore, it's crucial to review a company's financial health before investing. International Paper Co's cash-to-debt ratio of 0.1 is lower than 76.88% of companies in the Packaging & Containers industry, indicating fair financial strength, ranked 5 out of 10 by GuruFocus.
Profitability and Growth of International Paper Co
Consistently profitable companies offer less risk for investors. International Paper Co has been profitable 10 out of the past 10 years, with a revenue of $20.9 billion and an EPS of $3.61 over the past twelve months. Its operating margin of 8.19% ranks better than 66.58% of companies in the Packaging & Containers industry, indicating fair profitability.
Company growth is a significant factor in valuation. International Paper Co's 3-year average revenue growth rate is better than 55.56% of companies in the Packaging & Containers industry. However, its 3-year average EBITDA growth rate of 3.1% ranks worse than 58.01% of companies in the same industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can provide insights into its profitability. International Paper Co's ROIC of 9.98% over the past 12 months exceeds its WACC of 8.68%, indicating value creation for its shareholders.
In conclusion, International Paper Co's stock is considered significantly undervalued. The company's financial condition and profitability are fair, but its growth ranks lower than 58.01% of companies in the Packaging & Containers industry. To learn more about International Paper Co's stock, you can check out its 30-Year Financials here.
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