Today we're going to take a closer look at large-cap Technology company Analog Devices, whose shares are currently trading at $165.05. We've been asking ourselves whether the company is under or over valued at today's prices... let's perform a brief value analysis to find out!
A Lower P/B Ratio Than Its Sector Average but Trades Above Its Graham Number:
Analog Devices, Inc. designs, manufactures, tests, and markets integrated circuits (ICs), software, and subsystems that leverage analog, mixed-signal, and digital signal processing technologies. The company belongs to the Technology sector, which has an average price to earnings (P/E) ratio of 27.16 and an average price to book (P/B) ratio of 6.23. In contrast, Analog Devices has a trailing 12 month P/E ratio of 22.5 and a P/B ratio of 2.29.
When we divide Analog Devices's P/E ratio by its expected EPS growth rate of the next five years, we obtain its PEG ratio of -28.83. 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 54.23%:
| 2017-11-22 | 2018-11-27 | 2019-11-26 | 2020-11-24 | 2021-12-03 | 2022-11-22 | |
|---|---|---|---|---|---|---|
| Revenue (MM) | $5,108 | $6,225 | $5,991 | $5,603 | $7,318 | $12,014 |
| Gross Margins | 60.0% | 68.0% | 67.0% | 66.0% | 62.0% | 63.0% |
| Operating Margins | 21% | 31% | 30% | 28% | 24% | 30% |
| Net Margins | 14.0% | 24.0% | 23.0% | 22.0% | 19.0% | 23.0% |
| Net Income (MM) | $727 | $1,507 | $1,363 | $1,221 | $1,390 | $2,749 |
| Net Interest Expense (MM) | -$221 | -$244 | -$219 | -$189 | -$184 | -$194 |
| Depreciation & Amort. (MM) | -$584 | -$799 | -$811 | -$811 | -$1,406 | -$2,569 |
| Earnings Per Share | $2.08 | $4.02 | $3.66 | $3.28 | $3.74 | $5.25 |
| EPS Growth | n/a | 93.27% | -8.96% | -10.38% | 14.02% | 40.37% |
| Diluted Shares (MM) | 350 | 375 | 373 | 372 | 372 | 523 |
| Free Cash Flow (MM) | $1,358 | $2,697 | $2,528 | $2,159 | $3,115 | $5,217 |
| Capital Expenditures (MM) | -$204 | -$255 | -$275 | -$166 | -$344 | -$699 |
| Net Current Assets (MM) | -$8,628 | -$7,349 | -$7,698 | -$6,953 | -$8,951 | -$8,899 |
| Long Term Debt (MM) | $7,551 | $6,266 | $5,192 | $5,145 | $6,253 | $6,549 |
Analog Devices has healthy debt levels and wider gross margins than its peer group. Additionally, the company's financial statements display average operating margins with a positive growth rate and a strong EPS growth trend. Furthermore, Analog Devices has weak revenue growth and a flat capital expenditure trend, irregular cash flows, and a decent current ratio.
