With a daily gain of 6.46% and a 3-month gain of 5.23%, Methanex Corp (NASDAQ:MEOH) has been performing well in the stock market. The company's Earnings Per Share (EPS) (EPS) stand at 3.06. But the question on every investor's mind is: Is the stock fairly valued? This article aims to provide a comprehensive analysis of Methanex's valuation. Let's delve into the financials and market performance of this company.
A Snapshot of Methanex Corp
Methanex Corp is a leading manufacturer and seller of methanol. The company's products are utilized in the production of adhesives, foams, solvents, and windshield washer fluids. Additionally, Methanex's methanol is used in the oil refining industry to produce high-octane fuel and biodiesel. With a robust global supply chain, Methanex generates the most revenue from China.
As of September 19, 2023, Methanex's stock is priced at $43.82 per share, with a market cap of $2.90 billion. The company's GF Value, an estimate of fair value, stands at $46.68, indicating that the stock is fairly valued.
Understanding the GF Value
The GF Value is a unique measure of a stock's intrinsic value. It is calculated based on 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 value at which the stock should ideally trade.
When a stock's price significantly exceeds the GF Value Line, it is considered overvalued, and its future return is likely to be poor. Conversely, if the price is significantly below the GF Value Line, the stock is undervalued, and its future return is likely to be higher. Given Methanex's current price and GF Value, the stock appears to be fairly valued. As such, the long-term return of Methanex's stock is likely to be close to the rate of its business growth.
Assessing Methanex's Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's crucial to review a company's financial strength before deciding to buy shares. Methanex's cash-to-debt ratio is 0.22, which ranks worse than 77% of 1500 companies in the Chemicals industry. Based on this, GuruFocus ranks Methanex's financial strength as 5 out of 10, suggesting a fair balance sheet.
Profitability and Growth of Methanex
Companies that have been consistently profitable over the long term offer less risk for investors. Methanex has been profitable 8 over the past 10 years. Over the past twelve months, the company had a revenue of $4 billion and Earnings Per Share (EPS) of $3.06. Its operating margin is 11.24%, which ranks better than 70.39% of 1506 companies in the Chemicals industry. Overall, the profitability of Methanex is ranked 8 out of 10, indicating strong profitability.
Growth is a significant factor in the valuation of a company. The 3-year average annual revenue growth rate of Methanex is 13.2%, which ranks better than 62.24% of 1446 companies in the Chemicals industry. The 3-year average EBITDA growth rate is 26.7%, which ranks better than 75.54% of 1337 companies in the same industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can also evaluate a company's 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. If the ROIC exceeds the WACC, the company is likely creating value for its shareholders. During the past 12 months, Methanex's ROIC was 7.56 while its WACC came in at 7.65.
In conclusion, the stock of Methanex (NASDAQ:MEOH) appears to be fairly valued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 75.54% of 1337 companies in the Chemicals industry. To learn more about Methanex stock, you can check out its 30-Year Financials here.
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This article first appeared on GuruFocus.