LyondellBasell Industries NV (LYB) stock climbed 0.5 % this morning. According to our metrics, the company seems fairly valued at today's prices. In the below analysis, we will put LyondellBasell Industries NV's valuation in the context of its poor growth indicators and mixed market sentiment, which are also strong drivers for share price.
LyondellBasell Industries N.V. operates as a chemical company in the United States, Germany, Mexico, Italy, Poland, France, Japan, China, the Netherlands, and internationally. The large-cap Industrials company is based in Houston, United States and has 19,300 full time employees.
LYB's P/E Ratio Is Better Than the Sector Average
Compared to the Industrials sector's average of 20.49, LyondellBasell Industries NV has a trailing twelve month price to earnings (P/E) ratio of 8.0 and an expected P/E ratio of 8.9. P/E ratios are calculated by dividing the company's share price by its trailing 12 month or forward earnings per share, which stand at $11.83 and $10.62 respectively.
Earnings represent the net profits left over after subtracting costs of goods sold, taxes, and operating costs from the company's recorded sales revenue. One way of looking at the P/E ratio is that it represents how much investors are willing to pay for every dollar's worth of the company's earnings. Since LyondellBasell Industries NV's P/E ratio is lower than its sector average, we can deduce that the market is undervaluing the company's earnings.
LyondellBasell Industries NV Is Overvalued in Terms of Expected Growth
LyondellBasell Industries NV's PEG ratio is 2.16. This metric represents the company's earnings per share divided by its expected growth ratio, and is a useful complement to the price to earnings analysis, because it factors in growth to the valuation. A PEG ratio around or below 1 implies that the market in fairly valuing the company in terms of its growth estimates. But when the PEG ratio is higher, as in LyondellBasell Industries NV's case, it tells us the company is overvalued.
LYB Has an Average P/B Ratio
Traditionally, stock pickers used to focus primarily on finding issues that were trading significantly below their tangible asset value, to guarantee themselves a margin of safety. But such an approach would screen out many valuable securities because many profitable businesses -- especially those that heavily leverage information technology -- simply do not have many tangible assets compared to more capital intensive companies.
Therefore, modern value investors tend to focus less on absolute price to book value (P/B) ratios. Instead of singling out stocks with a P/B ratio of less than 1, they will compare the target company against its peer group. For LyondellBasell Industries NV, the P/B value is 2.4 while the average for the Industrials sector is 3.78.
LYB Is Generating Cash
LyondellBasell Industries NV has decent free cash flows. This represents the actual cash that the company is generating from its sales revenues, minus its re-investments in the business (capital expenditures). The company's operating cash flows have an average growth rate of 0.1%, compared to -0.1% for capital expenditures. From the table below we can also see that the free cash flows has an average growth rate of 0.2% and a coefficient of variability of 56.5%:
| Date Reported | Cash Flow from Operations ($ k) | Capital expenditures ($ k) | FreeCashFlow ($ k) | YoY Growth (%) |
|---|---|---|---|---|
| 2022-12-31 | 6,119,000 | -1,890,000 | 4,229,000 | -26.27 |
| 2021-12-31 | 7,695,000 | -1,959,000 | 5,736,000 | 293.69 |
| 2020-12-31 | 3,404,000 | -1,947,000 | 1,457,000 | -35.73 |
| 2019-12-31 | 4,961,000 | -2,694,000 | 2,267,000 | n/a |
LyondellBasell Industries NV's Is a Profitable Business
If you are looking to make LYB a long term investment, it's essential that you understand the viability of its business through a study of its margins. Gross margins tell you how much the company makes in profit when only the costs directly related to producing the goods or delivering the service are taken into account. Operating margins, on the other hand, factor in overhead costs so they tell you how effectively LyondellBasell Industries NV is run.
LyondellBasell Industries NV's Gross Margins
| Date Reported | Revenue ($ k) | Cost of Revenue ($ k) | Gross Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2022-12-31 | 50,451,000 | 43,847,000 | 13.09 | -31.14 |
| 2021-12-31 | 46,173,000 | 37,397,000 | 19.01 | 55.44 |
| 2020-12-31 | 27,753,000 | 24,359,000 | 12.23 | -21.7 |
| 2019-12-31 | 34,727,000 | 29,301,000 | 15.62 | n/a |
LyondellBasell Industries NV's Operating Margins
| Date Reported | TotalRevenue ($ k) | Operating Expenses ($ k) | Operating Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2022-12-31 | 50,451,000 | 1,434,000 | 10.25 | -36.02 |
| 2021-12-31 | 46,173,000 | 1,379,000 | 16.02 | 107.78 |
| 2020-12-31 | 27,753,000 | 1,253,000 | 7.71 | -34.94 |
| 2019-12-31 | 34,727,000 | 1,310,000 | 11.85 | n/a |
LyondellBasell Industries NV's cost of revenue is growing at a rate of 0.1% in contrast to 0.0% for operating expenses. Sales revenues, on the other hand, have experienced a 0.1% growth rate. As a result, the average gross margins growth is -0.0 and the average operating margins growth rate is -0.0, with coefficients of variability of 20.3% and 30.4% respectively.
LyondellBasell Industries NV Benefits From Positive Market Signals
The market sentiment regarding LyondellBasell Industries NV is overwhelmingly positive. The stock has an average rating of hold and target prices ranging from $130.0 to $74.0. LYB is trading -3.19% away from its target price of $97.82. 3.1% of the company's shares are tied to short positions, and 72.0% of the shares are held by institutional investors.
| Date Reported | Holder | Percentage | Shares | Value |
|---|---|---|---|---|
| 2022-12-31 | Vanguard Group, Inc. (The) | 10% | 32,362,325 | $3,064,550,355 |
| 2022-12-31 | Blackrock Inc. | 7% | 23,641,776 | $2,238,757,971 |
| 2022-12-31 | Dodge & Cox Inc | 5% | 16,568,492 | $1,568,953,344 |
| 2022-12-31 | Wellington Management Group, LLP | 4% | 11,992,094 | $1,135,591,337 |
| 2022-12-31 | State Street Corporation | 4% | 11,908,386 | $1,127,664,608 |
| 2022-12-31 | Capital International Investors | 3% | 10,555,593 | $999,561,875 |
| 2022-12-31 | Geode Capital Management, LLC | 2% | 5,653,467 | $535,355,055 |
| 2022-12-31 | Morgan Stanley | 2% | 5,564,134 | $526,895,667 |
| 2022-12-31 | Charles Schwab Investment Management, Inc. | 2% | 5,539,617 | $524,574,030 |
| 2022-12-31 | Dimensional Fund Advisors LP | 1% | 4,662,363 | $441,502,462 |
