POSCO Holdings (PKX): A Deeper Dive into Its Overvaluation

Is the stock significantly overvalued? Let's analyze its financials and intrinsic value.

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POSCO Holdings Inc (PKX, Financial) recently experienced a daily gain of 16.25%, despite a 3-month loss of -14.37%. The company's Earnings Per Share (EPS) stands at 3.28. However, the question remains: is the stock significantly overvalued? In this article, we will conduct a thorough valuation analysis of POSCO Holdings (PKX). We invite you to read on and delve deeper into the company's financials and intrinsic value.

Company Overview

POSCO Holdings Inc is a holding company that operates through its subsidiaries. The company's operating segments include Steel, Green Infrastructure Business, Green Materials and Energy, and Others. The Steel segment is involved in the production and sale of steel products. The Green Infrastructure Business provides infrastructure and related services. The Green Materials and Energy segment is engaged in the manufacturing and sale of energy-related and other industrial materials. The Others segment encompasses various operations.

Despite a current trading price of $97 per share, the GF Value estimates the fair value at $67.04, indicating that the stock is significantly overvalued. The company boasts a market cap of $29.40 billion and sales of $59.60 billion.

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Understanding the GF Value

The GF Value represents the current intrinsic value of a stock, derived from our proprietary method. The GF Value Line on our summary page provides an overview of the fair value at which the stock should ideally be traded. This line is calculated based on three parameters:

  1. Historical multiples (PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow) at which the stock has traded.
  2. GuruFocus adjustment factor based on the company's past returns and growth.
  3. Future estimates of the business performance.

If the stock price is significantly above the GF Value Line, the stock is deemed 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. Given POSCO Holdings' current price of $97 per share and a market cap of $29.40 billion, the stock is considered significantly overvalued.

Due to this overvaluation, the long-term return of POSCO Holdings' stock is likely to be much lower than its future business growth.

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Link: These companies may deliver higher future returns at reduced risk.

Financial Strength

Investing in companies with low financial strength could result in permanent capital loss. Therefore, investors must carefully review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can provide a good initial perspective on the company's financial strength. POSCO Holdings has a cash-to-debt ratio of 10000, which ranks better than 99.83% of 598 companies in the Steel industry. Based on this, GuruFocus ranks POSCO Holdings's financial strength as 8 out of 10, suggesting a strong balance sheet.

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Profitability and Growth

Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. POSCO Holdings has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $59.60 billion and Earnings Per Share (EPS) of $3.28. Its operating margin is 3.81%, which ranks worse than 52.88% of 607 companies in the Steel industry. Overall, the profitability of POSCO Holdings is ranked 7 out of 10, indicating fair profitability.

One of the most important factors in the valuation of a company is growth . Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of POSCO Holdings is 10%, which ranks worse than 54.65% of 591 companies in the Steel industry. The 3-year average EBITDA growth is 4.9%, which ranks worse than 69.5% of 518 companies in the Steel industry.

ROIC vs WACC

Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). 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. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, POSCO Holdings's ROIC was 5.51, while its WACC came in at 6.55.

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Conclusion

In summary, the stock of POSCO Holdings (PKX, Financial) is believed to be significantly overvalued. The company's financial condition is strong, and its profitability is fair. Its growth ranks worse than 69.5% of 518 companies in the Steel industry. To learn more about POSCO Holdings stock, you can check out its 30-Year Financials here.

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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.

Disclosures

I/we have no positions in any stocks mentioned, and have no plans to buy any new positions in the stocks mentioned within the next 72 hours. Click for the complete disclosure