Unveiling Daqo New Energy (DQ)'s Value: Is It Really Priced Right? A Comprehensive Guide
Daqo New Energy Corp (NYSE:DQ) recently experienced a daily gain of 3.06%, with a 3-month loss of -16.9%. Despite this, the company's Earnings Per Share (EPS) stands at 13.75. But the question remains: is the stock significantly undervalued? This article aims to provide a comprehensive valuation analysis of Daqo New Energy Corp. We invite you to delve into the following analysis for an informed investment decision.
Company Introduction
Daqo New Energy Corp is a leading polysilicon manufacturer based in China. The company specializes in manufacturing and selling high-purity polysilicon to photovoltaic product manufacturers. These manufacturers process Daqo's polysilicon into ingots, cells, and modules for solar power solutions. All of Daqo's revenue is derived from the People's Republic of China.
Currently, Daqo New Energy's stock price stands at $31.03 per share, with a market cap of $2.40 billion. However, according to GuruFocus's proprietary measure of intrinsic value, the GF Value, the fair value of the stock is estimated at $85.96 per share. This significant difference suggests that Daqo New Energy's stock is significantly undervalued.
Understanding the GF Value
The GF Value is a unique measure of a stock's intrinsic value, based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line on our summary page offers an overview of the fair value at which the stock should ideally be traded.
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. Given Daqo New Energy's current price and market cap, the stock is believed to be significantly undervalued. Consequently, the long-term return of Daqo New Energy's stock is likely to be much higher than its business growth.
Link: These companies may deliever higher future returns at reduced risk.
Financial Strength
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 deciding 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. Daqo New Energy has a cash-to-debt ratio of 10000, which ranks better than 99.89% of 904 companies in the Semiconductors industry. Based on this, GuruFocus ranks Daqo New Energy's financial strength as 10 out of 10, suggesting a strong balance sheet.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is generally less risky. A company with high profit margins is usually a safer investment than those with low profit margins. Daqo New Energy has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of $3.40 billion and Earnings Per Share (EPS) of $13.75. Its operating margin is 58.12%, which ranks better than 99.26% of 952 companies in the Semiconductors industry. Overall, the profitability of Daqo New Energy is ranked 9 out of 10, indicating strong profitability.
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. Daqo New Energy's 3-year average revenue growth rate is better than 98.62% of 872 companies in the Semiconductors industry. Daqo New Energy's 3-year average EBITDA growth rate is 292%, which ranks better than 99.48% of 775 companies in the Semiconductors industry.
ROIC vs WACC
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, Daqo New Energy's ROIC is 44.66 while its WACC came in at 5.75.
Conclusion
In conclusion, the stock of Daqo New Energy is believed to be significantly undervalued. The company's financial condition is strong, and its profitability is robust. Its growth ranks better than 99.48% of 775 companies in the Semiconductors industry. To learn more about Daqo New Energy stock, you can check out its 30-Year Financials here.
To find out the high-quality companies that may deliver above-average returns, please check out GuruFocus High Quality Low Capex Screener.
This article first appeared on GuruFocus.
