Required knowledge for VALE (VALE) Investors

A strong performer from today's evening trading session is VALE, whose shares rose 2.5% to $15.37 per share. For those of you thinking about investing in the stock, here is a brief value analysis of the stock using the company's basic fundamental ratios.

VALE Is Reasonably Valued:

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 16.53 and an average price to book (P/B) ratio of 2.07. In contrast, VALE has a trailing 12 month P/E ratio of 7.3 and a P/B ratio of 1.74.

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 -0.58. 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.

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.