Nutrien (NTR) stock climbed 3.5 % this afternoon. According to our metrics, the company seems undervalued at today's prices. In the below analysis, we will put Nutrien's valuation in the context of its strong growth indicators and mixed market sentiment, which are also strong drivers for share price.
Nutrien Ltd. provides crop inputs and services. The company operates through Retail, Potash, Nitrogen, and Phosphate segments. The large-cap Industrials company is based in Saskatoon, Canada and has 24,700 full time employees.
NTR's P/E Ratio Is Better Than the Sector Average
Compared to the Industrials sector's average of 20.49, Nutrien has a trailing twelve month price to earnings (P/E) ratio of 4.7 and an expected P/E ratio of 9.8. 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 $12.83 and $6.19 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 Nutrien's P/E ratio is lower than its sector average, we can deduce that the market is undervaluing the company's earnings.
Nutrien Has a Negative Rate of Expected Growth
P/E ratios are falling out of favor as a means of valuing stocks for a number of reasons. Earnings are subject to manipulation, and the P/E ratio is static in time, in the sense that it doesn't take into account expected long term growth of the company. Although estimated long terms growth rates are just as easily manipulable as earnings, dividing Nutrien's P/E ratio by its expected growth rate can tell us the relative market valuation of the company in relation to expected earnings growth.
The resulting metric, called price to earnings growth (PEG) is -0.5 for Nutrien. Since the PEG ratio is negative and the company's reported earnings per share are positive, we can deduce that the company's expected growth rate is negative. Needless to say, this is a red flag for investors with a long term horizon.
NTR 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 Nutrien, the P/B value is 1.19 while the average for the Industrials sector is 3.78.
NTR Is Generating Cash
Nutrien 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 22.0%, compared to 6.6% for capital expenditures. From the table below we can also see that the free cash flows has an average growth rate of 33.7% and a coefficient of variability of 67.1%:
| Date Reported | Cash Flow from Operations ($ k) | Capital expenditures ($ k) | Free Cashflow ($ k) | YoY Growth (%) |
|---|---|---|---|---|
| 2022-12-31 | 8,110,000 | -2,438,000 | 5,672,000 | 169.71 |
| 2021-12-31 | 3,886,000 | -1,783,000 | 2,103,000 | 18.55 |
| 2020-12-31 | 3,323,000 | -1,549,000 | 1,774,000 | 0.0 |
| 2019-12-31 | 3,665,000 | -1,891,000 | 1,774,000 | n/a |
Nutrien'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 Nutrien'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.
Nutrien's Gross Margins
| Date Reported | Revenue ($ k) | Cost of Revenue ($ k) | Gross Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2022-12-31 | 37,884,000 | 22,460,000 | 40.71 | 19.91 |
| 2021-12-31 | 27,712,000 | 18,303,000 | 33.95 | 35.47 |
| 2020-12-31 | 20,908,000 | 15,669,000 | 25.06 | -7.77 |
| 2019-12-31 | 20,023,000 | 14,582,000 | 27.17 | n/a |
Nutrien's Operating Margins
| Date Reported | Total Revenue ($ k) | Operating Expenses ($ k) | Operating Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2022-12-31 | 37,884,000 | 5,249,000 | 26.86 | 44.95 |
| 2021-12-31 | 27,712,000 | 4,274,000 | 18.53 | 124.61 |
| 2020-12-31 | 20,908,000 | 3,515,000 | 8.25 | -20.67 |
| 2019-12-31 | 20,023,000 | 3,359,000 | 10.4 | n/a |
Nutrien's cost of revenue is growing at a rate of 11.4% in contrast to 11.8% for operating expenses. Sales revenues, on the other hand, have experienced a 17.3% growth rate. As a result, the average gross margins growth is 10.6 and the average operating margins growth rate is 26.8, with coefficients of variability of 22.4% and 53.0% respectively.
Nutrien Benefits From Positive Market Signals
The market sentiment regarding Nutrien is overwhelmingly positive. The stock has an average rating of buy and target prices ranging from $101.0 to $49.0. NTR is trading -22.31% away from its target price of $78.13. 1.3% 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 |
|---|---|---|---|---|
| 2023-03-31 | Royal Bank of Canada | 5% | 26,039,212 | $1,580,580,188 |
| 2023-03-31 | Price (T.Rowe) Associates Inc | 5% | 22,758,328 | $1,381,430,526 |
| 2023-03-31 | Bank of America Corporation | 4% | 19,638,296 | $1,192,044,582 |
| 2023-03-31 | Vanguard Group, Inc. (The) | 4% | 18,095,147 | $1,098,375,436 |
| 2023-03-31 | Deutsche Bank Aktiengesellschaft | 3% | 15,152,334 | $919,746,685 |
| 2022-12-31 | Bank of Montreal/Can/ | 2% | 12,175,831 | $739,072,950 |
| 2023-03-31 | Dodge & Cox Inc | 2% | 11,533,359 | $700,074,900 |
| 2023-03-31 | Mackenzie Financial Corporation | 2% | 11,476,758 | $696,639,219 |
| 2023-03-31 | Capital International Investors | 2% | 10,264,803 | $623,073,549 |
| 2023-03-31 | FIL LTD | 2% | 9,957,574 | $604,424,749 |
