Unveiling Nordson (NDSN)'s Value: Is It Really Priced Right? A Comprehensive Guide
On September 26, 2023, Nordson Corp (NASDAQ:NDSN) experienced a daily loss of 3%, contributing to a 3-month loss of 9.87%. Despite these losses, the company boasts an Earnings Per Share (EPS) (EPS) of 8.68. This raises the question: Is Nordson (NASDAQ:NDSN) modestly undervalued? To answer this, we delve into a comprehensive valuation analysis of the company. Read on to gain valuable insights into Nordson's financial health and future prospects.
Company Overview
Nordson is a renowned manufacturer of equipment such as pumps, valves, dispensers, applicators, filters, and pelletizers. These equipment are used for dispensing adhesives, coatings, sealants, and other materials. The firm caters to a diverse range of end markets including packaging, medical, electronics, and industrial. Nordson's business is segmented into three divisions: industrial precision solutions, medical and fluid solutions, and advanced technology solutions. In fiscal 2022, the company generated approximately $2.6 billion in revenue and $702 million in operating income.
Understanding the GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It is derived from historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line provides 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.
Currently, Nordson (NASDAQ:NDSN) is considered modestly undervalued according to the GuruFocus Value calculation. With a price of $217.54 per share and a market cap of $12.40 billion, Nordson stock seems to offer a potentially higher long-term return than its business growth.
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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. A good initial perspective on the company's financial strength can be gained by looking at the cash-to-debt ratio and interest coverage. Nordson has a cash-to-debt ratio of 0.15, which ranks worse than 88.02% of 2846 companies in the Industrial Products industry. Based on this, GuruFocus ranks Nordson's financial strength as 7 out of 10, suggesting a fair balance sheet.
Profitability and Growth
Companies that have been consistently profitable over the long term offer less risk for investors. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Nordson has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $2.60 billion and Earnings Per Share (EPS) of $8.68. Its operating margin is 25.66%, which ranks better than 95.93% of 2899 companies in the Industrial Products industry. Overall, the profitability of Nordson is ranked 9 out of 10, indicating strong profitability.
Growth is a crucial factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term stock performance of a company. A faster-growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Nordson is 5.7%, which ranks worse than 52.17% of 2739 companies in the Industrial Products industry. The 3-year average EBITDA growth rate is 9.4%, which ranks better than 50.78% of 2428 companies in the Industrial Products 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). 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 is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Nordson's ROIC was 14.57, while its WACC came in at 8.78.
Conclusion
In conclusion, Nordson (NASDAQ:NDSN) is believed to be modestly undervalued. The company's financial condition is fair and its profitability is strong. Its growth ranks better than 50.78% of 2428 companies in the Industrial Products industry. To learn more about Nordson stock, you can check out its 30-Year Financials here.
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This article first appeared on GuruFocus.
