It's been a great morning session for PACCAR investors, who saw their shares rise 1.5% to a price of $83.89 per share. At these higher prices, is the company still fairly valued? If you are thinking about investing, make sure to check the company's fundamentals before making a decision.
A Very Low P/E Ratio but Trades Above Its Graham Number:
PACCAR Inc designs, manufactures, and distributes light, medium, and heavy-duty commercial trucks in the United States, Europe, Mexico, South America, Australia, and internationally. It operates through three segments: Truck, Parts, and Financial Services. The company belongs to the Consumer Discretionary sector, which has an average price to earnings (P/E) ratio of 22.33 and an average price to book (P/B) ratio of 3.12. In contrast, PACCAR has a trailing 12 month P/E ratio of 13.8 and a P/B ratio of 3.16.
When we divide PACCAR's P/E ratio by its expected EPS growth rate of the next five years, we obtain its PEG ratio of -0.95. 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.
The Business Has Operating Margins Consistently Higher Than the 6.43% industry Average:
| 2019-12-31 | 2020-12-31 | 2021-12-31 | 2022-12-31 | |
|---|---|---|---|---|
| Revenue (MM) | $25,600 | $18,728 | $23,522 | $28,820 |
| Gross Margins | 15.7% | 13.1% | 14.0% | 16.5% |
| Operating Margins | 11.6% | 8.4% | 9.7% | 12.8% |
| Net Margins | 9.33% | 6.93% | 7.87% | 10.45% |
| Net Income (MM) | $2,388 | $1,298 | $1,852 | $3,012 |
| Net Interest Expense (MM) | 42 | 54 | 73 | 109 |
| Net Interest Expense (MM) | $42 | $54 | $73 | $109 |
| Depreciation & Amort. (MM) | -$1,077 | -$1,049 | -$903 | -$790 |
| Earnings Per Share | $4.58 | $2.5 | $3.57 | $6.08 |
| EPS Growth | n/a | -45.41% | 42.8% | 70.31% |
| Diluted Shares (MM) | 521 | 521 | 523 | 523 |
| Free Cash Flow (MM) | $890 | $1,349 | $554 | $1,636 |
| Capital Expenditures (MM) | -$1,971 | -$1,638 | -$1,633 | -$1,390 |
| Net Current Assets (MM) | -$11,026 | -$10,617 | -$9,708 | -$9,831 |
| Current Ratio | 1.27 | 1.29 | 1.31 | 1.43 |
| Long Term Debt (MM) | $7,426 | $7,740 | $7,407 | $8,206 |
| Net Debt / EBITDA | 1.67 | 2.65 | 2.09 | 1.12 |
PACCAR has strong margins with a stable trend and positive EPS growth. Additionally, the company's financial statements display consistent free cash flow and healthy leverage. However, the firm has slimmer gross margins than its peers. Finally, we note that PACCAR has stable revenues and decreasing reinvestment in the business and just enough current assets to cover current liabilities.
