At a price of $105.84, 3M Company shares are -13.19% below their average analyst target price of $121.92. Yet the average analyst rating for the stock is hold.
The 3M Company is an American multinational conglomerate corporation operating in the fields of industry, worker safety, US health care, and consumer goods.
3M Company's trailing 12 month P/E ratio is 10.5 based on its trailing EPS of $10.18. The company has a forward P/E ratio of according to its forward EPS of $9.51 -- which is an estimate of what its earnings will look like in the next quarter. The P/E ratio is the company's share price divided by its earnings per share. In other words, it represents how much investors are willing to spend for each dollar of the company's earnings (revenues minus the cost of goods sold, taxes, and overhead). As of the first quarter of 2023, the industrials sector has an average P/E ratio of 20.49, and the average for the S&P 500 is 15.97.
To better understand MMM’s valuation, we can divide its price to earnings ratio by its projected five-year growth rate, which gives us its price to earnings, or PEG ratio. Considering the P/E ratio in the context of growth is important, because many companies that are undervalued in terms of earnings are actually overvalued in terms of growth.
3M Company’s PEG ratio is 2.314, which indicates that the company is overvalued compared to its growth prospects. Bear in mind that PEG ratios have limits to their relevance, since they are based on future growth estimates that may not turn out as expected.
An analysis of the company's gross profit margins can help us understand its long term profitability and market position. Gross profits are the company's revenue minus the cost of goods only, and unlike earnings, don't take into account taxes and overhead. Here's an overview of 3M Company's gross profit margin trends:
| Date Reported | Revenue (k) | Cost of Revenue (k) | Gross Margin | YoY Growth |
|---|---|---|---|---|
| 2022-12-31 | $34,229,000 | $19,232,000 | 43.81% | -6.47% |
| 2021-12-31 | $35,355,000 | $18,795,000 | 46.84% | -3.24% |
| 2020-12-31 | $32,184,000 | $16,605,000 | 48.41% | 3.71% |
| 2019-12-31 | $32,136,000 | $17,136,000 | 46.68% | -4.91% |
| 2018-12-31 | $32,765,000 | $16,682,000 | 49.09% | n/a |
- Average gross margin: 46.97 %
- Average gross margin growth rate: -2.18 %
- Coefficient of variability (lower numbers indicating more stability): 4 %
3M Company's gross margins indicate that its underlying business is viable, and that the stock is potentially worthy for investment -- as opposed to speculative -- purposes.
To deepen our understanding of the company's finances, we should study the effect of its depreciation and capital expenditures on the company's bottom line. We can see the effect of these additional factors in 3M Company's free cash flow, which was $3,842,000,000.00 as of its most recent annual report. This represents the amount of money that is available for reinvesting in the business, or for paying out to investors in the form of a dividend. With its strong cash flows, MMM is in a position to do either -- which can encourage more investors to place their capital in the company. Over the last four years, the company's free cash flow has been growing at a rate of -2.45% and has on average been $5.3 Billion.
Value investors often analyze stocks through the lens of its Price to Book (P/B) Ratio (its share price divided by its book value). The book value refers to the present value of the company if the company were to sell off all of its assets and pay all of its debts today - a number whose value may differ significantly depending on the accounting method. 3m company's P/B ratio is 4.95 -- in other words, the market value of the company exceeds its book value by a factor of more than 4, so the company's assets may be overvalued compared to the average P/B ratio of the Industrials sector, which stands at 3.78 as of the first quarter of 2023.
3M Company is likely fairly valued at today's prices because it has a very low P/E ratio, an elevated P/B ratio, and a steady stream of positive cash flows with a flat trend. The stock has mixed growth prospects because of its consistent operating margins with a stable trend, and an inflated PEG ratio. We hope this preliminary analysis will encourage you to do your own research into MMM's fundamental values -- especially their trends over the last few years, which provide the clearest picture of the company's valuation.
