Linde PLC (LIN, Financial) recently reported a 1.55% daily gain, marking a 2.53% loss over the past three months. With an Earnings Per Share (EPS) of 11.46, the question arises: is the stock fairly valued? This article aims to answer this question through a comprehensive valuation analysis. So, let's dive in.
Company Introduction
Linde PLC, the world's largest industrial gas supplier with operations in over 100 countries, offers a range of products from atmospheric gases to process gases, as well as equipment used in industrial gas production. Serving diverse markets like chemicals, manufacturing, healthcare, and steelmaking, Linde generated approximately $33 billion in revenue and $5.4 billion in GAAP operating profit in 2022. With a current stock price of $375.95 and a market cap of $183.40 billion, we need to compare these figures with the GF Value to determine if the stock is fairly valued.
Summarizing GF Value
The GF Value is a proprietary measure of a stock's intrinsic value, factoring in historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line provides an overview of the fair value at which the stock should ideally be traded.
According to GuruFocus Value calculation, Linde PLC (LIN, Financial) appears to be fairly valued. This conclusion is 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 or below the GF Value Line, it is overvalued or undervalued respectively, influencing its future return.
Given that Linde PLC is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth.
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Financial Strength
Investing in companies with poor financial strength carries a higher risk of permanent capital loss. Therefore, it's crucial to carefully review a company's financial strength before deciding to buy its stock. Linde PLC's cash-to-debt ratio of 0.19 is worse than 80.29% of the companies in the Chemicals industry. However, Linde PLC's overall financial strength is ranked 7 out of 10 by GuruFocus, indicating fair financial strength.
Profitability and Growth
Companies that consistently demonstrate profitability over the long term offer less risk to investors. Linde PLC has been profitable over the past 10 years, reporting a revenue of $33.10 billion and Earnings Per Share (EPS) of $11.46 over the past twelve months. Its operating margin of 22.34% ranks better than 91.98% of the companies in the Chemicals industry. Overall, Linde PLC's profitability is ranked 8 out of 10, indicating strong profitability.
Another critical factor in a company's valuation is its growth. Companies that grow faster create more value for shareholders, especially if that growth is profitable. Linde PLC's average annual revenue growth is 8.5%, which ranks worse than 53.52% of the companies in the Chemicals industry. However, its 3-year average EBITDA growth is 11.1%, ranking better than 52.58% of the companies in the Chemicals industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can also help evaluate its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC exceeds the WACC, the company is likely creating value for its shareholders. Over the past 12 months, Linde PLC's ROIC was 7.31 while its WACC was 10.16.
Conclusion
In summary, Linde PLC (LIN, Financial) appears to be fairly valued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 52.58% of the companies in the Chemicals industry. To learn more about Linde PLC stock, you can check out its 30-Year Financials here.
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