Allegion PLC: An Undervalued Stock with Strong Profitability
Allegion PLC (NYSE:ALLE) experienced a daily gain of 1.48% and has an Earnings Per Share (EPS) of 5.84. However, over the last three months, the stock has seen a loss of 2.49%. This raises the question: Is Allegion PLC modestly undervalued? This article aims to provide a comprehensive analysis of the valuation of Allegion PLC. We invite readers to explore the financial performance and value of Allegion PLC.
About Allegion PLC
Allegion PLC is a globally recognized security products company, known for leading brands such as Schlage, Von Duprin, and LCN. Originating from a spinoff transaction from Ingersoll-Rand in December 2013, the Ireland-domiciled company competes primarily with Assa Abloy of Sweden and Dormakaba of Switzerland. In fiscal 2022, Allegion generated 73% of sales in the United States. The company's stock price is currently at $107.44, with a market cap of $9.40 billion. The GF Value, an estimation of the fair value, stands at $145.54, indicating that the stock might be undervalued.
Understanding the GF Value
The GF Value is a unique measure of a stock's intrinsic value, computed based on historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line provides a snapshot of the fair value that the stock should ideally be traded at. If the stock price is significantly above the GF Value Line, it is 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.
According to GuruFocus Value calculation, Allegion PLC seems to be modestly undervalued. At its current price of $107.44 per share and the market cap of $9.40 billion, the stock of Allegion PLC is likely to provide a higher long-term return due to its undervalued status.
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Financial Strength of Allegion PLC
Investing in companies with low financial strength could result in permanent capital loss. Hence, a careful review of a company's financial strength is crucial before deciding to buy shares. Allegion PLC has a cash-to-debt ratio of 0.16, which ranks worse than 78.67% of companies in the Business Services industry. Based on this, GuruFocus ranks Allegion PLC's financial strength as 5 out of 10, suggesting a fair balance sheet.
Profitability and Growth of Allegion PLC
Companies that have been consistently profitable over the long term offer less risk for investors. Allegion PLC has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $3.60 billion and an Earnings Per Share (EPS) of $5.84. Its operating margin is 18.77%, which ranks better than 83.78% of companies in the Business Services industry. Overall, the profitability of Allegion PLC is ranked 9 out of 10, indicating strong profitability.
Growth is a crucial factor in the valuation of a company. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Allegion PLC is 7%, which ranks better than 58.63% of companies in the Business Services industry. However, the 3-year average EBITDA growth rate is 6.2%, which ranks worse than 57.5% of companies in the Business Services industry.
ROIC vs WACC
Comparing a company's Return on Invested Capital (ROIC) to the Weighted Average Cost of Capital (WACC) can help determine its profitability. For the past 12 months, Allegion PLC's ROIC is 20.44, and its WACC is 8.46, indicating that the company is creating value for shareholders.
Conclusion
In conclusion, the stock of Allegion PLC (NYSE:ALLE) shows signs of being modestly undervalued. The company's financial condition is fair, and its profitability is strong. However, its growth ranks worse than 57.5% of companies in the Business Services industry. To learn more about Allegion PLC stock, you can check out its 30-Year Financials here.
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This article first appeared on GuruFocus.
