Shares of CNH Industrial (CNHI) Are Down -6.4% — Is This a Good Entry Point?

CNH Industrial was one of the market's biggest losers today, losing 6.4% of its value and underperforming both the S&P500 and Dow Industrial composite indices by 0.0%. The large-cap Industrials company ended the day at $13.74, but is still well above its 52 week low of $10.6 and is 30.89% below its average target price of $19.88. Over the last 12 months, CNH Industrial is up 0.8%, and has outperformed the S&P 500 by 9.0%. The stock has an average analyst rating of buy.

CNH Industrial has a trailing 12 month price to earnings (P/E) ratio of 9.2, which corresponds to its share price divided by its trailing earnings per share (EPS) of $1.49. The company's forward P/E ratio is 7.8 based on its forward EPS of $1.76.

Earnings refer to the net income of the company from its sales operations, and the P/E ratio tells us how much investors are willing to pay for each dollar of these earnings. By way of comparison, the Industrials sector has historically had an average P/E ratio of 20.49. Whether the company's P/E ratio is within a high or low range tells us how investors are currently valuing the stock's earning potential, but it doesn't tell us how its price will move in the future.

Another metric for valuing a stock is its Price to Book (P/B) Ratio, which is its share price divided by its book value per share. The book value refers to the sum of all of the company's tangible assets and liabilities. CNH Industrial's P/B ratio of 2.7 indicates that the company is fairly valued when compared to the Industrials sector's average P/B ratio of 3.78.

To understand CNH Industrial's business, and therefore its attractiveness as a potential investment, we must analyze its margins in two steps. First, we look at its gross margins, which take into account only the direct cost of providing the product or service to the customer. This enables us to determine whether the company benefits from an advantageous market position:

Date Reported Revenue ($ k) Cost of Revenue ($ k) Gross Margins (%) YoY Growth (%)
2022-12-31 23,551,000 16,797,000 28.68 28.21
2021-12-31 33,428,000 25,951,000 22.37 23.8
2020-12-31 26,032,000 21,327,000 18.07 -18.79
2019-12-31 28,079,000 21,832,000 22.25 n/a
  • Average gross margins: 22.8 %
  • Coefficient of variability (lower numbers indicate more stability): 19.2 %

Next, we consider the CNH Industrial's operating margins, which take into account overhead. This tells us whether the company's business model is fundamentally profitable or not:

Date Reported TotalRevenue ($ k) Operating Expenses ($ k) Operating Margins (%) YoY Growth (%)
2022-12-31 23,551,000 2,618,000 17.56 54.58
2021-12-31 33,428,000 3,679,000 11.36 82.64
2020-12-31 26,032,000 3,087,000 6.22 -41.81
2019-12-31 28,079,000 3,246,000 10.69 n/a
  • Average operating margins: 11.5 %
  • Coefficient of variability (lower numbers indicate more stability): 40.7 %

Since both CNH Industrial's gross margins and operating margins tend to be positive, we know that its business is currently profitable. However, it's important to take into account their variability and overall growth trend to make a definitive conclusion regarding the company's strength.

Our final point of analysis is CNH Industrial's free cash flow. While earnings and margins are calculated on the basis of a company's delivered goods, they do not actually represent physical payments that flow into the coffers. The actually money that the company has -- minus its capital expenditures -- is reported as its free cash flow, which for CNH Industrial is as follows:

Date Reported Cash Flow from Operations ($ k) Capital expenditures ($ k) FreeCashFlow ($ k) YoY Growth (%)
2022-12-31 557,000 nan 557,000 -72.82
2021-12-31 4,082,000 -2,033,000 2,049,000 -44.31
2020-12-31 5,529,000 -1,850,000 3,679,000 2805.15
2019-12-31 1,826,000 -1,962,000 -136,000 n/a
  • Average free cash flow: $557,000,000
  • Coefficient of variability (lower numbers indicating more stability): 110.2%

This is the pool of liquidity that the company can use to reinvest in its business and to pay its equity investors a dividend. Investors in CNH Industrial enjoy a dividend yield of 2.6%, and they can expect this to continue based on the company's positive cash flows.

Overall, CNH Industrial seems to be a strong business with an attractive valuation in numeric terms. Potential investors may want to take a closer look at the stock, and focus on whether it also has qualitative factors that show that it can provide solid returns.

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.