ON Semiconductor Corp (ON, Financial) is currently experiencing a daily loss of -2.61%, with a 3-month gain of 4.08%. Its Earnings Per Share (EPS) stands at 4.37. However, the question that arises is, is the stock significantly overvalued? This article aims to provide a detailed valuation analysis of ON Semiconductor (ON) to answer this question. We invite you to read on for an in-depth exploration of the company's value.
ON Semiconductor Corp (ON, Financial): A Snapshot
ON Semiconductor Corp (ON), a leading supplier of power semiconductors and sensors, focuses on the automotive and industrial markets. As the second-largest power chipmaker globally and the largest supplier of image sensors to the automotive market, ON Semiconductor is now adopting a hybrid manufacturing strategy for flexible capacity. The company is shifting its focus to emerging applications like electric vehicles, autonomous vehicles, industrial automation, and renewable energy. With a current stock price of $91.99 and a GF Value of $67.56, there seems to be a discrepancy between the stock's market price and its estimated fair value.
Understanding the GF Value
The GF Value is a unique measure of a stock's intrinsic value, calculated based on three factors: historical multiples that the stock has traded at, a GuruFocus adjustment factor based on the company's past performance and growth, and future estimates of business performance. The GF Value Line on our summary page provides a snapshot of the fair value at which the stock should ideally be traded. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
Is ON Semiconductor Overvalued?
Based on the GuruFocus Value calculation, ON Semiconductor (ON, Financial) appears to be significantly overvalued. With a current price of $91.99 per share and a market cap of $39.70 billion, the stock's future return is likely to be much lower than its future business growth due to its overvaluation. This valuation assessment indicates that the long-term return of ON Semiconductor's stock might be significantly reduced.
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ON Semiconductor's Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's crucial to review a company's financial strength before deciding to buy shares. ON Semiconductor has a cash-to-debt ratio of 0.75, ranking worse than 71.57% of 904 companies in the Semiconductors industry. Based on this, GuruFocus ranks ON Semiconductor's financial strength as 8 out of 10, suggesting a strong balance sheet.
Profitability and Growth of ON Semiconductor
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. ON Semiconductor has been profitable for 10 years over the past 10 years. During the past 12 months, the company had revenues of $8.40 billion and Earnings Per Share (EPS) of $4.37. Its operating margin of 32.66% is better than 94.43% of 952 companies in the Semiconductors industry. Overall, GuruFocus ranks ON Semiconductor's profitability as strong.
One of the most important factors in the valuation of a company is growth. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of ON Semiconductor is 11.9%, which ranks worse than 50.8% of 872 companies in the Semiconductors industry. The 3-year average EBITDA growth is 40%, which ranks better than 72.52% of 775 companies in the Semiconductors industry.
ROIC vs WACC: ON Semiconductor's Profitability
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, ON Semiconductor's return on invested capital is 28.94, and its cost of capital is 12.12.
Conclusion
Overall, ON Semiconductor (ON, Financial) stock appears to be significantly overvalued. The company's financial condition is strong, and its profitability is robust. Its growth ranks better than 72.52% of 775 companies in the Semiconductors industry. To learn more about ON Semiconductor stock, you can check out its 30-Year Financials here.
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