We've been asking ourselves recently if the market has placed a fair valuation on STMicroelectronics. Let's dive into some of the fundamental values of this large-cap Technology company to determine if there might be an opportunity here for value-minded investors.
A Lower P/B Ratio Than Its Sector Average but Trades Above Its Graham Number:
STMicroelectronics N.V., together with its subsidiaries, designs, develops, manufactures, and sells semiconductor products in Europe, the Middle East, Africa, the Americas, and the Asia Pacific. The company belongs to the Technology sector, which has an average price to earnings (P/E) ratio of 35.0 and an average price to book (P/B) ratio of 7.92. In contrast, STMicroelectronics has a trailing 12 month P/E ratio of 10.8 and a P/B ratio of 2.94.
STMicroelectronics's PEG ratio is 2.35, which shows that the stock is probably overvalued in terms of its estimated growth. For reference, a PEG ratio near or below 1 is a potential signal that a company is undervalued.
The Business Has Weak Operating Margins:
| 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | |
|---|---|---|---|---|---|---|
| Revenue (MM) | $8,347 | $9,664 | $9,556 | $10,219 | $12,761 | $16,128 |
| Revenue Growth | n/a | 15.78% | -1.12% | 6.94% | 24.88% | 26.39% |
| Operating Margins | 12% | 14% | 13% | 13% | 19% | 28% |
| Net Margins | 10% | 13% | 11% | 11% | 16% | 25% |
| Net Income (MM) | $802 | $1,287 | $1,032 | $1,106 | $2,000 | $3,960 |
| Net Interest Expense (MM) | -$22 | -$7 | $1 | -$20 | -$29 | $58 |
| Depreciation & Amort. (MM) | $650 | $791 | $854 | $923 | $1,045 | $1,216 |
| Earnings Per Share | $0.89 | $1.41 | $1.14 | $1.2 | $2.16 | $4.19 |
| EPS Growth | n/a | 58.43% | -19.15% | 5.26% | 80.0% | 93.98% |
| Diluted Shares (MM) | 906 | 911 | 904 | 920 | 925 | 946 |
| Free Cash Flow (MM) | $3,175 | $1,845 | $1,869 | $2,093 | $3,060 | $5,202 |
| Current Ratio | 2.52 | 2.76 | 3.03 | 2.49 | 2.65 | 2.56 |
| Total Debt (MM) | $1,819 | $2,056 | $2,245 | $3,416 | $2,682 | $2,892 |
| Net Debt / EBITDA | 0.04 | -0.1 | -0.17 | 0.18 | -0.16 | -0.06 |
STMicroelectronics has growing revenues and no capital expenditures and exceptional EPS growth. Additionally, the company's financial statements display low leverage and irregular cash flows. However, the firm has weak operating margins with a positive growth rate.
