What Fundamentals Would ben Graham Look for in NCR (NCR) Stock?

Based on the factors that Benjamin Graham considered in analyzing potential stock picks, NCR is not a quality investment. Only investors with a high risk tolerance and a solid investment thesis on the stock will be interested in this mid-cap Information Technology Services company.

NCR Is Probably Overvalued

Graham devised the below equation to give investors a quick way of determining whether a stock is trading at a fair multiple of its earnings and its assets:

√(22.5 * 6 year average earnings per share (0.57) * 6 year average book value per share (11.075) = $10.83

At today's price of $30.7 per share, NCR is now trading 183.5% above the maximum price that Graham would have wanted to pay for the stock.

Even though the stock does not trade at an attractive multiple, it might still meet some of the other criteria for quality stocks that Graham listed in Chapter 14 of The Intelligent Investor.

Positive Retained Earnings From 2009 To 2022, No Dividend Record, and Decreasing Earnings Per Share

Ben Graham wrote that an investment in a company with a record of positive retained earnings could contribute significantly to the margin of safety. NCR had positive retained earnings from 2009 to 2022 with an average of $1.29 Billion over this period.

Another one of Graham's requirements is for a 30% or more cumulative growth rate of the company's earnings per share over the last ten years.We are going to compare NCR's earnings per share averages from the two 'bookends' of the 15 year period for which we have data. The first bookend comprises the years 2008, 2009, and 2010, whose EPS values of $1.36, $-0.21, and $0.83 average out to $0.66. Next we look at the years 2020, 2021, and 2022, whose values of $-0.86, $0.58, and $0.31 average out to $0.01. The growth rate between the two averages does not meet Graham's standard since it is -98.48%.

We have no record of NCR offering a regular dividend.

Negative Current Asset to Liabilities Balance and an Average Current Ratio

Graham sought companies with extremely low debt levels compared to their assets. For one, he expected their current ratio to be over 2 and their long term debt to net current asset ratio to be near, or ideally under, under 1. NCR fails on both counts with a current ratio of 1.1 and a debt to net current asset ratio of -0.8.

According to Graham's analysis, NCR is likely a company of low quality, which is trading far above its fair price.

2018-02-26 2019-02-28 2020-02-28 2021-02-26 2022-02-25 2023-02-27
Revenue (MM) $6,516 $6,405 $6,915 $6,207 $7,156 $7,844
Gross Margins 28.0% 26.0% 28.0% 25.0% 26.0% 24.0%
Operating Margins 11% 7% 9% 4% 7% 6%
Net Margins 4.0% -1.0% 8.0% -1.0% 1.0% 1.0%
Net Income (MM) $232 -$88 $564 -$79 $97 $60
Net Interest Expense (MM) -$163 -$168 -$197 -$218 -$238 -$285
Depreciation & Amort. (MM) -$354 -$330 -$333 -$364 -$517 -$610
Earnings Per Share $0.97 -$1.16 $3.13 -$0.62 $0.7 $0.42
EPS Growth n/a -219.59% 369.83% -119.81% 212.9% -40.0%
Diluted Shares (MM) 127 118 145 128 138 141
Free Cash Flow (MM) $874 $712 $714 $665 $1,182 $529
Capital Expenditures (MM) -$122 -$140 -$80 -$24 -$105 -$82
Net Current Assets (MM) -$3,277 -$3,466 -$4,341 -$4,612 -$7,232 -$6,671
Long Term Debt (MM) $2,939 $2,980 $3,277 $3,270 $5,505 $5,561
Net Debt / EBITDA 2.35 3.61 3.23 5.03 5.16 4.7
The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.