Amid the stock market's daily fluctuations, Allegion PLC (ALLE, Financial) has recently shown a 5% daily gain, complemented by a 2.51% increase over the past three months. With an Earnings Per Share (EPS) of 6.31, investors are considering whether the stock is modestly undervalued. This article delves into a detailed valuation analysis to uncover the intrinsic worth of Allegion PLC and to determine if the current market price reflects its true value.
Company Introduction
Allegion PLC is a prominent player in the global security products sector, known for its reputable brands like Schlage and Von Duprin. Since its inception as a spinoff from Ingersoll-Rand in December 2013, Allegion PLC has made significant strides, especially in the United States, where it generated 73% of its sales. With a current market cap of $9.70 billion and a stock price of $110.34, juxtaposed against the GF Value of $143.61, a closer examination of its valuation is warranted. This comparison sets the stage for an insightful analysis of Allegion PLC's financial health and market positioning.
Summarizing the GF Value
The GF Value is a unique metric that calculates the intrinsic value of a stock based on historical trading multiples, a GuruFocus adjustment factor, and anticipated future business performance. If a stock trades significantly above this value, it may be overvalued, suggesting a potentially lower future return. Conversely, trading below the GF Value Line could indicate a higher future return. Currently, Allegion PLC's stock price suggests that it is modestly undervalued, hinting at the potential for higher long-term returns than its business growth alone might indicate.
Link: These companies may deliver higher future returns at reduced risk.
Financial Strength
Investors should be wary of companies with poor financial strength, as they pose a high risk of permanent capital loss. Key indicators such as the cash-to-debt ratio and interest coverage can provide insights into a company's financial robustness. Allegion PLC's cash-to-debt ratio stands at 0.18, which is lower than 78.06% of its peers in the Business Services industry. However, with a financial strength rating of 6 out of 10, Allegion PLC's financial situation is deemed fair.
Profitability and Growth
Investing in profitable companies, especially those with a history of consistent profitability, is generally considered less risky. Allegion PLC has maintained profitability for the past decade, with a 19.59% operating margin that outperforms 84.83% of its industry counterparts. This impressive profitability is reflected in a ranking of 9 out of 10. However, when it comes to growth, Allegion PLC's figures are less stellar, with a 3-year average revenue growth rate surpassing only 56.54% of the industry and an EBITDA growth rate that is below the median.
ROIC vs WACC
Evaluating a company's profitability can also be done by comparing its Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC). A higher ROIC than WACC suggests value creation for shareholders. Allegion PLC's ROIC of 20.28 is well above its WACC of 8.62, indicating effective capital allocation and value generation.
Conclusion
In conclusion, Allegion PLC (ALLE, Financial) presents itself as modestly undervalued in the market. The company enjoys a fair financial condition and robust profitability, though its growth is not as competitive within the Business Services industry. For those interested in a deeper dive into Allegion PLC's financials, a comprehensive review of its 30-Year Financials is available.
To discover high-quality companies that may deliver above-average returns, explore the 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.
