Unveiling RPM International (RPM)'s Value: Is It Really Priced Right? A Comprehensive Guide
With a daily gain of 6.3% and a three-month gain of 3.81%, RPM International Inc (NYSE:RPM) has been making waves in the stock market. It boasts an Earnings Per Share (EPS) of 3.72. But the question remains: is this stock fairly valued? Let's delve into a comprehensive valuation analysis to find out.
Company Overview
RPM International Inc manufactures and sells a variety of paints, coatings, and adhesives. The firm organizes itself into four segments based on product type. The construction products group sells coatings, roofing, insulation, and other products to distributers, contractors, and end consumers globally. The performance coatings group produces coatings that are used in construction and industrial applications like floorings and corrosion control. The consumer group sells paint, finishes, and similar products to individual consumers through hardware and craft stores. The specialty products group sells a variety of products ranging from niche applications of the other groups, to marine finishes, to edible food colorings. The majority of revenue comes from North America.
Understanding the GF Value
The GF Value represents the current intrinsic value of a stock derived from our exclusive method. The GF Value Line on our summary page gives an overview of the fair value that the stock should be traded at. It is calculated based on three factors:
Historical multiples (PE Ratio, PS Ratio, PB Ratio and Price-to-Free-Cash-Flow) that the stock has traded at.
GuruFocus adjustment factor based on the company's past returns and growth.
Future estimates of the business performance.
We believe the GF Value Line is the fair value that the stock should be traded at. The stock price will most likely fluctuate around the GF Value Line. If the stock price 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.
The stock of RPM International (NYSE:RPM) is estimated to be fairly valued based on GuruFocus' valuation method. GF Value estimates the stock's fair value based on three key factors: historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. If the share price is significantly above the GF Value Line, the stock may be overvalued and have poor future returns. On the other hand, if the share price is significantly below the GF Value calculation, the stock may be undervalued and have higher future returns. At its current price of $ 98.65 per share, RPM International stock is estimated to be fairly valued.
Because RPM International is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth.
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Financial Strength
Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to understand its financial strength. RPM International has a cash-to-debt ratio of 0.07, which ranks worse than 91.21% of 1502 companies in the Chemicals industry. The overall financial strength of RPM International is 5 out of 10, which indicates that the financial strength of RPM International is fair.
Profitability and Growth
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. RPM International has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $7.30 Bil and Earnings Per Share (EPS) of $3.72. Its operating margin is 10.92%, which ranks better than 69.1% of 1521 companies in the Chemicals industry. Overall, the profitability of RPM International is ranked 9 out of 10, which indicates 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. RPM International's 3-year average revenue growth rate is better than 51.8% of 1448 companies in the Chemicals industry. RPM International's 3-year average EBITDA growth rate is 11.9%, which ranks better than 53.93% of 1337 companies in the Chemicals 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, RPM International's ROIC is 10.71 while its WACC came in at 9.
Conclusion
In summary, the stock of RPM International (NYSE:RPM) is estimated to be fairly valued. The company's financial condition is fair and its profitability is strong. Its growth ranks better than 53.93% of 1337 companies in the Chemicals industry. To learn more about RPM International stock, you can check out its 30-Year Financials here.
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This article first appeared on GuruFocus.
