POSCO Holdings Inc (PKX, Financial) closed at a price of $92.47 per share on October 10, 2023, marking a -4.5% change for the day. Despite a 19.44% gain over the past three months, the question remains: Is the stock significantly overvalued? With an Earnings Per Share (EPS) (EPS) of 3.12, a deeper dive into the company's valuation is crucial. This analysis aims to provide an answer by examining the company's GF Value, financial strength, and growth prospects.
Company Overview
POSCO Holdings Inc operates as a holding company through its subsidiaries. The company's operations include the production and sale of steel products, provision of infrastructure and related services, trading and natural resources development activities, planning, designing and construction of industrial plants, civil engineering projects and buildings, power generation, and information technology and operational technology services. The company also manufactures and sells energy-related and other industrial materials.
With a market cap of $28.10 billion and sales amounting to $60.60 billion, POSCO Holdings stands as a significant player in its industry. However, the stock currently trades at $92.47 per share, significantly above its GF Value of $62.69, indicating a potential overvaluation.
Understanding the GF Value
The GF Value is a proprietary measure that estimates a stock's intrinsic value, considering 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 that the stock should be traded at.
POSCO Holdings' stock appears to be significantly overvalued according to GuruFocus Value calculation. 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. Given POSCO Holdings' current price and market cap, the stock seems significantly overvalued, suggesting that the long-term return of its stock is likely to be much lower than its future business growth.
Link: These companies may deliever higher future returns at reduced risk.
Financial Strength
Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Thus, it is important to carefully review the financial strength of a company before deciding whether to buy its stock. POSCO Holdings has a cash-to-debt ratio of 0.69, better than 62.48% of 589 companies in the Steel industry. GuruFocus ranks the overall financial strength of POSCO Holdings at 6 out of 10, indicating it is fair.
Profitability and Growth
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. POSCO Holdings has been profitable 10 years over the past 10 years. Its operating margin of 3.29% is worse than 54.55% of 605 companies in the Steel industry. GuruFocus ranks POSCO Holdings's profitability as fair.
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 POSCO Holdings is10%, ranking worse than 54.08% of 588 companies in the Steel industry. The 3-year average EBITDA growth is 4.9%, ranking worse than 69.28% of 511 companies in the Steel industry.
ROIC vs WACC
Another way to look at the profitability of a company is to compare its return on invested capital and the weighted 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. For the past 12 months, POSCO Holdings's return on invested capital is 4.24, and its cost of capital is 8.26.
Conclusion
In summary, the stock of POSCO Holdings (PKX, Financial) gives every indication of being significantly overvalued. The company's financial condition is fair, and its profitability is fair. Its growth ranks worse than 69.28% of 511 companies in the Steel industry. To learn more about POSCO Holdings stock, you can check out its 30-Year Financials here.
To find out the high quality companies that may deliver above-average returns, please check out GuruFocus High Quality Low Capex Screener.
This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
