Linde PLC Stock Is Estimated To Be Significantly Overvalued
- By GF Value
The stock of Linde PLC (NYSE:LIN, 30-year Financials) appears 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 $292.5 per share and the market cap of $152.1 billion, Linde PLC stock shows every sign of being significantly overvalued. GF Value for Linde PLC is shown in the chart below.
Because Linde PLC is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 9.3% over the past three years and is estimated to grow 5.35% annually over the next three to five years.
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Since investing in companies with low financial strength could result in permanent capital loss, investors must carefully review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. Linde PLC has a cash-to-debt ratio of 0.26, which ranks worse than 77% of the companies in Chemicals industry. Based on this, GuruFocus ranks Linde PLC's financial strength as 5 out of 10, suggesting fair balance sheet. This is the debt and cash of Linde PLC over the past years:
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Linde PLC has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $27.7 billion and earnings of $5.5 a share. Its operating margin is 15.28%, which ranks better than 76% of the companies in Chemicals industry. Overall, the profitability of Linde PLC is ranked 8 out of 10, which indicates strong profitability. This is the revenue and net income of Linde PLC over the past years:
Growth is probably one of the most important factors in the valuation of a company. GuruFocus' research has found that growth is closely correlated with the long-term performance of a company's stock. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. Linde PLC's 3-year average revenue growth rate is better than 76% of the companies in Chemicals industry. Linde PLC's 3-year average EBITDA growth rate is 7%, which ranks in the middle range of the companies in Chemicals industry.
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted 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 ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Linde PLC's ROIC was 3.73, while its WACC came in at 5.00.
In short, The stock of Linde PLC (NYSE:LIN, 30-year Financials) is estimated to be significantly overvalued. The company's financial condition is fair and its profitability is strong. Its growth ranks in the middle range of the companies in Chemicals industry. To learn more about Linde PLC stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.
