ICL Group Ltd (NYSE:ICL), a prominent manufacturer of mineral-based products, reported a daily gain of 2.96% and an Earnings Per Share (EPS) (EPS) of 1.09. Despite a 3-month loss of -2.51%, the question arises: is the stock significantly undervalued? This article aims to provide a comprehensive valuation analysis of ICL Group (NYSE:ICL). Read on to gain valuable insights into the company's financial health and future prospects.
ICL Group Ltd operates through four segments: phosphate solutions, potash, industrial products, and growing solutions. The company mines and manufactures potash and phosphates, which are utilized in fertilizers and the pharmaceutical and food additives industries. Additionally, ICL Group is engaged in the development of industrial additives and materials, including flame retardants, phosphate salts, specialty phosphate blends, and electronic-grade specialty phosphoric acids. Its operations span across Europe, Asia, North and South America, and the rest of the world.
At a stock price of $5.75 per share, ICL Group (NYSE:ICL) has a market cap of $7.50 billion. However, according to GuruFocus's exclusive GF Value, the fair value of the stock stands at $9.16, suggesting that the stock is significantly undervalued.
Understanding the GF Value
The GF Value is a proprietary measure that represents the intrinsic value of a stock. It is derived from historical trading multiples, a GuruFocus adjustment factor based on past returns and growth, and future business performance estimates. The GF Value Line provides an overview of the fair trading value of the stock. A stock price significantly above the GF Value Line indicates overvaluation and potential poor future returns. Conversely, a stock price significantly below the GF Value Line suggests undervaluation and potential high future returns.
As per GuruFocus' valuation method, ICL Group (NYSE:ICL) is significantly undervalued. Given this undervaluation, the long-term return of its stock is likely to be much higher than its business growth.
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's crucial to carefully review a company's financial strength before investing. ICL Group has a cash-to-debt ratio of 0.19, ranking it lower than 74.27% of 241 companies in the Agriculture industry. Based on this, GuruFocus ranks ICL Group's financial strength as 7 out of 10, suggesting a fair balance sheet.
Profitability and Growth
Investing in profitable companies carries less risk, especially if the companies have demonstrated consistent profitability over the long term. ICL Group has been profitable 9 years over the past 10 years. During the past 12 months, the company had revenues of $8.50 billion and an Earnings Per Share (EPS) of $1.09. Its operating margin of 25.86% is better than 90.72% of 237 companies in the Agriculture industry. GuruFocus ranks ICL Group's profitability as strong.
Growth is a critical 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. ICL Group's growth ranks better than 70.09% of 224 companies in the Agriculture industry, with a 3-year average annual revenue growth rate of 23.6% and a 3-year average EBITDA growth rate of 50.5%.
ROIC vs WACC
Comparing a company's Return on Invested Capital (ROIC) and the Weighted Average Cost of Capital (WACC) can provide insights into its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. Ideally, ROIC should be higher than WACC. For the past 12 months, ICL Group's ROIC is 16.44, and its WACC is 8.05.
In conclusion, ICL Group (NYSE:ICL) appears to be significantly undervalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 81.31% of 214 companies in the Agriculture industry. To learn more about ICL Group stock, you can check out its 30-Year Financials here.
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This article first appeared on GuruFocus.