- By GF Value
The stock of DuPont de Nemours (NYSE:DD, 30-year Financials) is estimated to be significantly overvalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated 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 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. At its current price of $75.6 per share and the market cap of $40.4 billion, DuPont de Nemours stock appears to be significantly overvalued. GF Value for DuPont de Nemours is shown in the chart below.
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DD 15-Year Financial Data
The intrinsic value of DD
Peter Lynch Chart of DD
Because DuPont de Nemours is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 8.2% over the past five years.
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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. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company. DuPont de Nemours has a cash-to-debt ratio of 0.12, which is worse than 87% of the companies in Chemicals industry. GuruFocus ranks the overall financial strength of DuPont de Nemours at 4 out of 10, which indicates that the financial strength of DuPont de Nemours is poor. This is the debt and cash of DuPont de Nemours over the past years:
It poses less risk to invest in profitable companies, especially those that have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. DuPont de Nemours has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of $20.4 billion and loss of $4.01 a share. Its operating margin is 8.14%, which ranks in the middle range of the companies in Chemicals industry. Overall, GuruFocus ranks the profitability of DuPont de Nemours at 5 out of 10, which indicates fair profitability. This is the revenue and net income of DuPont de Nemours over the past years:
Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term stock performance of a company. A faster growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of DuPont de Nemours is 8.2%, which ranks better than 67% of the companies in Chemicals industry. The 3-year average EBITDA growth rate is -34.1%, which ranks in the bottom 10% of the companies in Chemicals industry.
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average 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 return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, DuPont de Nemours's ROIC is 2.65 while its WACC came in at 8.75. The historical ROIC vs WACC comparison of DuPont de Nemours is shown below:
In short, the stock of DuPont de Nemours (NYSE:DD, 30-year Financials) is believed to be significantly overvalued. The company's financial condition is poor and its profitability is fair. Its growth ranks in the bottom 10% of the companies in Chemicals industry. To learn more about DuPont de Nemours stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.