Unveiling Ingevity (NGVT)'s Value: Is It Really Priced Right? A Comprehensive Guide
Despite a daily loss of 5.3% and a 3-month loss of 26.07%, Ingevity Corp (NYSE:NGVT) presents a compelling case for value investors. With an Earnings Per Share (EPS) (EPS) of 4.71, the question arises: is the stock significantly undervalued? This article aims to answer this question by providing a comprehensive analysis of Ingevity's valuation. So, let's delve into the details.
Company Introduction
Ingevity Corp is a U.S.-based chemical manufacturer. It operates through two segments: Performance Chemicals and Performance Materials. The Performance Chemicals segment contributes the majority of the revenue, specializing in the manufacture and sale of specialty chemicals used in various processes such as asphalt paving, oil exploration and production, agrochemicals, adhesives, lubricants, and publication inks. The Performance Materials segment focuses on automotive carbon products. Despite a global presence, North America remains its primary market.
At the current price of $43.94 per share and a market cap of $1.60 billion, the stock appears significantly undervalued when compared to the GF Value of $90.46. The following analysis will provide a deeper insight into Ingevity's value.
Understanding the GF Value
The GF Value is a proprietary measure that estimates a stock's intrinsic value, drawing on historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line represents the ideal fair trading value of the stock. 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, Ingevity (NYSE:NGVT) is significantly undervalued. The long-term return of its stock is likely to be much higher than its business growth due to this undervaluation.
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Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's essential to review a company's financial strength before buying shares. Looking at the cash-to-debt ratio and interest coverage can provide a good initial perspective. Ingevity has a cash-to-debt ratio of 0.04, ranking worse than 94.34% of 1502 companies in the Chemicals industry. Based on this, GuruFocus ranks Ingevity's financial strength as 4 out of 10, suggesting a poor balance sheet.
Profitability and Growth
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. A company with high profit margins typically offers better performance potential than a company with low profit margins. Ingevity has been profitable for 10 years over the past 10 years. During the past 12 months, the company had revenues of $1.70 billion and Earnings Per Share (EPS) of $4.71. Its operating margin of 18.57% is better than 88.3% of 1521 companies in the Chemicals industry. GuruFocus ranks Ingevity's profitability as strong.
Growth is one of the most important factors in the valuation of a company. If a company's business is growing, it usually creates value for its shareholders, especially if the growth is profitable. Ingevity's 3-year average revenue growth rate is better than 58.7% of 1448 companies in the Chemicals industry. However, its 3-year average EBITDA growth rate is 9.4%, ranking worse than 51.23% of 1337 companies in the Chemicals industry.
ROIC vs WACC
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, Ingevity's ROIC was 11.19, while its WACC came in at 8.58.
Conclusion
In conclusion, the stock of Ingevity (NYSE:NGVT) is significantly undervalued. The company's financial condition is poor, but its profitability is strong. Its growth ranks worse than 51.23% of 1337 companies in the Chemicals industry. To learn more about Ingevity stock, you can check out its 30-Year Financials here.
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This article first appeared on GuruFocus.
