It hasn't been a great afternoon session for VALE investors, who have watched their shares sink by -2.1% to a price of $13.74. Some of you might be wondering if it's time to buy the dip. If you are considering this, make sure to check the company's fundamentals first to determine if the shares are fairly valued at today's prices.
VALE Is Potentially Undervalued:
Vale S.A., together with its subsidiaries, produces and sells iron ore and iron ore pellets for use as raw materials in steelmaking in Brazil and internationally. The company belongs to the Basic Materials sector, which has an average price to earnings (P/E) ratio of 10.03 and an average price to book (P/B) ratio of 2.08. In contrast, VALE has a trailing 12 month P/E ratio of 4.4 and a P/B ratio of 0.32.
When we divide VALE's P/E ratio by its expected EPS growth rate of the next five years, we obtain its PEG ratio of -0.28. Since it's negative, the company has negative growth expectations, and most investors will probably avoid the stock unless it has an exceptionally low P/E and P/B ratio.
Wider Gross Margins Than the Industry Average of 32.76%:
| 2019-12-31 | 2020-12-31 | 2021-12-31 | 2022-12-31 | |
|---|---|---|---|---|
| Revenue (MM) | $37,570 | $40,018 | $54,502 | $43,839 |
| Gross Margins | 43.6% | 52.4% | 60.1% | 45.2% |
| Operating Margins | 36.7% | 46.4% | 56.6% | 40.6% |
| Net Margins | -4.48% | 12.2% | 41.18% | 42.86% |
| Net Income (MM) | -$1,683 | $4,881 | $22,445 | $18,788 |
| Net Interest Expense (MM) | -3,413 | -3,207 | -1,818 | -536 |
| Net Interest Expense (MM) | -$3,413 | -$3,207 | -$1,818 | -$536 |
| Depreciation & Amort. (MM) | -$3,726 | -$3,234 | -$3,034 | -$3,171 |
| Earnings Per Share | -$0.33 | $0.95 | $4.47 | $3.13 |
| EPS Growth | n/a | 387.88% | 370.53% | -29.98% |
| Diluted Shares (MM) | 5,128 | 5,133 | 5,017 | 4,429 |
| Free Cash Flow (MM) | $8,406 | $9,892 | $20,646 | $6,039 |
| Capital Expenditures (MM) | -$3,704 | -$4,430 | -$5,033 | -$5,446 |
| Net Current Assets (MM) | -$35,678 | -$32,783 | -$31,776 | -$34,010 |
| Current Ratio | 1.23 | 1.67 | 1.47 | 1.12 |
| Long Term Debt (MM) | $15,382 | $18,247 | $15,997 | $14,948 |
| Net Debt / EBITDA | 2.15 | 0.56 | 0.17 | 0.42 |
VALE has growing revenues and increasing reinvestment in the business, strong margins with a stable trend, and exceptional EPS growth. The company also benefits from low leverage, wider gross margins than its peer group, and generally positive cash flows. Furthermore, VALE has just enough current assets to cover current liabilities.
