Today we're going to take a closer look at large-cap Basic Materials company VALE, whose shares are currently trading at $14.96. 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!
VALE Is Fairly Priced at Current Levels:
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 7.1 and a P/B ratio of 1.69.
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 -0.59. 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 Company's Revenues Are Declining:
| 2013 | 2015 | 2016 | 2017 | 2018 | 2019 | |
|---|---|---|---|---|---|---|
| Revenue (MM) | $48,753 | $23,384 | $27,488 | $33,967 | $36,575 | $36,575 |
| Gross Margins | 21% | 20% | 32% | 38% | 40% | 40% |
| Operating Margins | 19% | -27% | 26% | 32% | 33% | 33% |
| Net Margins | 11% | -52% | 24% | 19% | 19% | 19% |
| Net Income (MM) | $5,511 | -$12,129 | $6,622 | $6,622 | $6,860 | $6,860 |
| Net Interest Expense (MM) | $4 | -$10,654 | $1,843 | $1,843 | -$3,019 | -$3,393 |
| Depreciation & Amort. (MM) | $4,396 | n/a | $3,554 | $3,554 | $3,509 | $3,503 |
| Free Cash Flow (MM) | $818 | $7,584 | $10,555 | $15,562 | $15,562 | $17,250 |
| Net Current Assets (MM) | -$32,218 | n/a | -$35,423 | -$35,423 | -$35,458 | -$35,678 |
| Long Term Debt (MM) | $30,267 | n/a | $46,758 | $44,876 | $41,298 | $38,875 |
| Net Debt / EBITDA | 2.15 | nan | 4.68 | 3.3 | 2.85 | 2.64 |
VALE has declining revenues and no capital expenditures, slimmer gross margins than its peers, and a highly leveraged balance sheet. VALE has average net margins with a positive growth rate, positive expected EPS Growth, and irregular cash flows.
