Building up an investment case requires looking at a stock holistically. Today I've chosen to put the spotlight on KEMET Corporation (NYSE:KEM) due to its excellent fundamentals in more than one area. KEM is a financially-sound company with a great history of performance, trading at a discount. Below, I've touched on some key aspects you should know on a high level. If you're interested in understanding beyond my broad commentary, read the full report on KEMET here.
Outstanding track record with excellent balance sheet
KEM delivered a triple-digit bottom-line expansion over the past couple of years, with its most recent earnings level surpassing its average level over the last five years. This strong performance generated a robust double-digit return on equity of 31%, which paints a buoyant picture for the company. KEM's strong financial health means that all of its upcoming liability payments are able to be met by its current cash and short-term investment holdings. This implies that KEM manages its cash and cost levels well, which is a crucial insight into the health of the company. KEM seems to have put its debt to good use, generating operating cash levels of 0.58x total debt in the most recent year. This is also a good indication as to whether debt is properly covered by the company’s cash flows.
KEM is currently trading below its true value, which means the market is undervaluing the company's expected cash flow going forward. According to my intrinsic value of the stock, which is driven by analyst consensus forecast of KEM's earnings, investors now have the opportunity to buy into the stock to reap capital gains. Also, relative to the rest of its peers with similar levels of earnings, KEM's share price is trading below the group's average. This supports the theory that KEM is potentially underpriced.
For KEMET, there are three important factors you should look at:
- Future Outlook: What are well-informed industry analysts predicting for KEM’s future growth? Take a look at our free research report of analyst consensus for KEM’s outlook.
- Dividend Income vs Capital Gains: Does KEM return gains to shareholders through reinvesting in itself and growing earnings, or redistribute a decent portion of earnings as dividends? Our historical dividend yield visualization quickly tells you what your can expect from KEM as an investment.
- Other Attractive Alternatives : Are there other well-rounded stocks you could be holding instead of KEM? Explore our interactive list of stocks with large potential to get an idea of what else is out there you may be missing!
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.