Interpublic (IPG) stock climbed 1.3 % this afternoon. According to our metrics, the company seems fairly valued at today's prices. In the below analysis, we will put Interpublic's valuation in the context of its strong growth indicators and mixed market sentiment, which are also strong drivers for share price.
The Interpublic Group of Companies, Inc. provides advertising and marketing services worldwide. The large-cap Consumer Discretionary company is based in New York, United States and has 58,200 full time employees.
IPG's P/E Ratio Is Comparable to its Sector Average
Compared to the Consumer Discretionary sector's average of 22.33, Interpublic has a trailing twelve month price to earnings (P/E) ratio of 16.0 and an expected P/E ratio of 11.8. P/E ratios are calculated by dividing the company's share price by either its trailing 12 month ($2.3) or forward earnings per share ($3.12).
Earnings is another term for the net profits left over after subtracting cost 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 Interpublic's P/E ratio is near its sector average of 22.33, we can deduce that the market is fairly valuing the company's earnings.
Interpublic Is Fairly Valued in Terms of Expected Growth
Another factor pointing to Interpublic's value is its PEG ratio of 1.85. This is the stock's price to earnings ratio divided by its estimated earnings growth rate. If the resulting ratio is near or lower than 1 -- but higher than 0 -- its indicates that the company is faitly valued in terms of expected growth.
IPG Has an Alarming P/B Ratio
The price to book (P/B) ratio of a company is a comparison of the company's market capitalization versus its net asset, or book value. A ratio lower than 1 tells you that the equity market is undervaluing the book value of the company's assets, and ratios higher than 1 tell you that the equity markets are overvaluing the company in terms of its assets.
Of course, a company is worth much more than its assets alone, so the focus on P/B ratio is mainly to enable investors to single out undervalued securities that offer a margin of safety. Since Interpublic's P/B ratio of 3.98 is higher than its sector average of 3.12, such a margin of safety does not exist for the stock.
IPG Is Generating Cash
Interpublic 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 -20.6%, compared to -2.7% for capital expenditures. From the table below we can also see that the free cash flows has an average growth rate of -24.6% and a coefficient of variability of 48.2%:
| Date Reported | Cash Flow from Operations ($ k) | Capital expenditures ($ k) | Free Cashflow ($ k) | YoY Growth (%) |
|---|---|---|---|---|
| 2022-12-31 | 608,800 | -178,100 | 430,700 | -77.09 |
| 2021-12-31 | 2,075,600 | -195,300 | 1,880,300 | 11.94 |
| 2020-12-31 | 1,847,200 | -167,500 | 1,679,700 | 26.23 |
| 2019-12-31 | 1,529,200 | -198,500 | 1,330,700 | n/a |
Interpublic's Margins Are Strong
If you buy a stock for the long run, you want the underlying business model to be profitable. Gross margins tell you how much profit the company generates compared to the cost of revenue, which is the cost directly related to providing Interpublic's goods and services. Operating margins, on the other hand, tell you how much of these profits the company keeps after you take overhead into account.
Interpublic's Gross Margins
| Date Reported | Revenue ($ k) | Cost of Revenue ($ k) | Gross Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2022-12-31 | 10,927,800 | 9,083,100 | 16.88 | -6.69 |
| 2021-12-31 | 10,240,700 | 8,387,800 | 18.09 | 21.25 |
| 2020-12-31 | 9,061,000 | 7,709,400 | 14.92 | 2.19 |
| 2019-12-31 | 10,221,300 | 8,729,100 | 14.6 | n/a |
Interpublic's Operating Margins
| Date Reported | Total Revenue ($ k) | Operating Expenses ($ k) | Operating Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2022-12-31 | 10,927,800 | 361,100 | 13.58 | -3.89 |
| 2021-12-31 | 10,240,700 | 406,100 | 14.13 | 27.76 |
| 2020-12-31 | 9,061,000 | 349,400 | 11.06 | 0.91 |
| 2019-12-31 | 10,221,300 | 372,300 | 10.96 | n/a |
Interpublic's cost of revenue is growing at a rate of 1.0% in contrast to -0.8% for operating expenses. Sales revenues, on the other hand, have experienced a 1.7% growth rate. As a result, the average gross margins growth is 3.7 and the average operating margins growth rate is 5.5, with coefficients of variability of 10.3% and 13.3% respectively.
We See Mixed Market Signals Regarding IPG
Interpublic has an average rating of buy and target prices ranging from $45.0 to $37.0. At its current price of $36.74, the company is trading -9.06% away from its target price of $40.4. 4.4% of the company's shares are linked to short positions, and 101.9% of the shares are owned by institutional investors.
| Date Reported | Holder | Percentage | Shares | Value |
|---|---|---|---|---|
| 2022-12-31 | Vanguard Group, Inc. (The) | 12% | 47,122,596 | $1,731,354,901 |
| 2022-12-31 | Blackrock Inc. | 10% | 40,432,838 | $1,485,563,151 |
| 2022-12-31 | State Street Corporation | 5% | 21,054,406 | $773,570,476 |
| 2023-03-31 | FMR, LLC | 5% | 18,643,775 | $685,000,275 |
| 2022-12-31 | Harris Associates L.P. | 4% | 14,129,191 | $519,127,683 |
| 2023-03-31 | Bank Of New York Mellon Corporation | 4% | 14,127,344 | $519,059,821 |
| 2023-03-31 | Black Creek Investment Management Inc. | 3% | 10,797,311 | $396,709,411 |
| 2022-12-31 | Charles Schwab Investment Management, Inc. | 2% | 9,275,928 | $340,811,516 |
| 2022-12-31 | Invesco Ltd. | 2% | 8,948,194 | $328,770,077 |
| 2022-12-31 | Geode Capital Management, LLC | 2% | 8,295,462 | $304,787,724 |
