Is Avantor (AVTR) an Overvalued Stock?

Avantor may be overvalued with strong growth indicators, but the 18 analysts following the company give it an average rating of buy. The analysts have set target prices ranging from $20.0 to $30.0 per share, for an average of $27.17. At today's price of $22.59, Avantor is trading -16.84% away from its average target price, suggesting there is an analyst consensus of some upside potential.

Avantor, Inc. provides products and services to clients in the biopharmaceutical, healthcare, education and government, advanced technologies and applied materials industries in America, Europe, Asia, the Middle East and Africa. The large-cap Industrials company is based in Radnor, PA. Avantor has offered a 0.0% dividend yield over the last 12 months.

Avantor has a trailing twelve month P/E ratio of 21.73, compared to an average of 20.49 for the Industrials sector. Based on its EPS guidance of 1.59, the company has a forward P/E ratio of 14.21.

In contrast, the market is undervaluing Avantor in terms of its equity because its P/B ratio is 3.109. In comparison, the sector average is 3.78. You will also note from the table below that its leverage, as represented by its elevated ratio of debt to EBITDA (earnings before interest tax depreciation and amortization). The company's shares are currently trading 137.34% above their Graham number, implying that they are overvalued in terms of earnings and book value.

If analysts are giving the the company a decent rating despite its hefty price point, it could be related to its strong cash flows. Furthermore, Avantor has wide margins as you can see in the financial summary below.

2019-12-31 2020-12-31 2021-12-31 2022-12-31
Revenue (MM) $6,040 $6,394 $7,386 $7,512
Revenue Growth n/a 5.85% 15.52% 1.71%
Gross Margins 31.8% 32.54% 33.88% 34.65%
Gross Margins Growth n/a 2.33% 4.12% 2.27%
Operating Margins 9.14% 11.05% 13.16% 15.04%
Operating Margins Growth n/a 20.9% 19.1% 14.29%
Earnings Per Share $0.07 $0.2 $0.94 $1.02
EPS Growth n/a 185.71% 370.0% 8.51%
Diluted Shares (MM) 573 580 610 674
Free Cash Flow (MM) $302 $868 $842 $710
FCF Growth n/a 187.1% -2.96% -15.7%
Capital Expenditures (MM) $52 $62 $111 $133
Net Debt / EBITDA 5.71 6.05 10.15 4.12
The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.