Unveiling Sensient Technologies (SXT)'s Value: Is It Really Priced Right? A Comprehensive Guide
Despite a day's gain of 4.24% and an Earnings Per Share (EPS) (EPS) of 3.15, Sensient Technologies Corp (NYSE:SXT) has experienced a 3-month loss of -12.38%. This raises an important question for value investors: Is Sensient Technologies stock modestly undervalued? This article will delve into a comprehensive valuation analysis to address this question. Let's get started.
Company Introduction
Sensient Technologies Corp operates in the chemicals industry, manufacturing and marketing natural and synthetic colors, flavors, and other specialty ingredients. Its products, used in various end markets such as food and beverage, cosmetics and pharmaceuticals, and personal care industries, are applied predominantly to consumer-facing products. With a widespread network of facilities globally, Sensient Technologies Corp has a current market cap of $2.70 billion and sales of $1.50 billion.
Understanding GF Value
The GF Value is a proprietary measure used to estimate a stock's fair value. It incorporates historical multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line on our summary page provides an overview of the fair value that the stock should ideally be traded at.
When the stock price is significantly above the GF Value Line, the stock may be overvalued and its future return is likely to be poor. Conversely, if the stock price is significantly below the GF Value Line, the stock may be undervalued, and its future return will likely be higher. With its current price of $64.64 per share, Sensient Technologies (NYSE:SXT) stock is considered modestly undervalued.
As Sensient Technologies is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth.
Financial Strength
Investing in companies with poor financial strength can lead to a high risk of permanent capital loss. To avoid this, investors must research and review a company's financial strength before deciding to purchase shares. Sensient Technologies has a cash-to-debt ratio of 0.05, ranking worse than 94.1% of 1475 companies in the Chemicals industry. The overall financial strength of Sensient Technologies is 6 out of 10, indicating that its financial strength is fair.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is generally less risky. Sensient Technologies has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $1.50 billion and an Earnings Per Share (EPS) of $3.15. Its operating margin is 13.15%, ranking better than 77.41% of 1474 companies in the Chemicals industry. Overall, the profitability of Sensient Technologies is ranked 7 out of 10, indicating fair profitability.
Growth is a crucial factor in the valuation of a company. The 3-year average annual revenue growth of Sensient Technologies is 2.9%, ranking worse than 71.99% of 1421 companies in the Chemicals industry. However, the 3-year average EBITDA growth rate is 12.3%, ranking better than 54.19% of 1312 companies in the Chemicals industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) and the weighted cost of capital (WACC) is another way to assess its 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. For the past 12 months, Sensient Technologies's ROIC is 8.87, and its cost of capital is 6.79.
Conclusion
In conclusion, the stock of Sensient Technologies (NYSE:SXT) is believed to be modestly undervalued. The company's financial condition is fair and its profitability is fair. Its growth ranks better than 54.19% of 1312 companies in the Chemicals industry. To learn more about Sensient Technologies 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.
