MKS Instruments Inc (MKSI, Financial) has recently seen a daily loss of 5.31%, although it has gained 3.88% over the past three months. With a significant Loss Per Share of 26.69, investors are prompted to question whether the stock is modestly overvalued. This article delves into the valuation analysis of MKS Instruments, encouraging readers to explore the detailed financial insights that follow.
Company Overview
MKS Instruments Inc is a key player in the technology sector, specializing in instruments, subsystems, and process control systems essential for manufacturing processes. The company's products are crucial in the production of items like flat panel displays, medical devices, and electronic materials. MKS Instruments is divided into three main business segments: Vacuum Solutions, Photonics Solutions, and Materials Solutions, with Vacuum Solutions being the largest revenue contributor. Predominantly, its market presence is strongest in the United States.
Currently, MKS Instruments is trading at $123.57 per share with a market cap of $8.30 billion. When compared to the GF Value of $105.71, which suggests the stock's fair intrinsic value, MKS Instruments appears to be modestly overvalued.
Understanding GF Value
The GF Value is a proprietary measure calculated to represent the intrinsic value of a stock. This value is derived from historical trading multiples, a GuruFocus adjustment factor based on past returns and growth, and projected future business performance. If MKS Instruments' stock price significantly exceeds the GF Value, it may indicate that the stock is overvalued, suggesting a potentially lower future return. Conversely, a price well below the GF Value could signal a higher future return.
Given the current price, MKS Instruments shows signs of modest overvaluation, which might lead to less attractive long-term returns compared to its business growth.
Financial Strength and Risks
Investing in companies with robust financial strength is critical to minimize the risk of capital loss. MKS Instruments, with a cash-to-debt ratio of 0.17, ranks poorly compared to its industry peers. This low ratio, which is worse than 90.41% of companies in the Hardware industry, signals potential financial vulnerabilities. GuruFocus ranks MKS Instruments' financial strength as 4 out of 10, indicating a weak balance sheet that could pose investment risks.
Profitability and Growth Prospects
Profitability is often a strong indicator of a company's financial health and its potential for long-term success. MKS Instruments has maintained profitability for 9 out of the past 10 years, with an operating margin of 13.26% that outperforms 85.26% of its industry counterparts. However, its growth metrics present a mixed picture. The company's 3-year average annual revenue growth rate stands at 8.8%, yet its EBITDA growth rate over the same period is 0%, which is concerning when compared to industry standards.
Evaluating Return on Invested Capital
Comparing the Return on Invested Capital (ROIC) with the Weighted Average Cost of Capital (WACC) provides insight into value creation. MKS Instruments' ROIC over the past 12 months is 5.75, significantly lower than its WACC of 12.09, suggesting that the company is not generating adequate returns relative to its capital costs.
Conclusion
In conclusion, MKS Instruments (MKSI, Financial) appears modestly overvalued based on its current market price relative to the GF Value. The company's financial condition raises concerns, despite its strong profitability. The growth metrics and return on invested capital also suggest potential challenges in value creation. For a deeper understanding of MKS Instruments' financial health and stock potential, investors are encouraged to review its 30-Year Financials.
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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.
