Koninklijke Philips shares fell by -1.4% during the day's morning session, and are now trading at a price of $20.08. Is it time to buy the dip? To better answer that question, it's essential to check if the market is valuing the company's shares fairly in terms of its earnings and equity levels.
Koninklijke Philips's Valuation Is in Line With Its Sector Averages:
Koninklijke Philips N.V. operates as a health technology company in North America, the Greater China, and internationally. The company belongs to the Health Care sector, which has an average price to earnings (P/E) ratio of 30.21 and an average price to book (P/B) ratio of 4.08. In contrast, Koninklijke Philips has a trailing 12 month P/E ratio of -38.6 and a P/B ratio of 1.51.
When we divideKoninklijke Philips's P/E ratio by its expected five-year EPS growth rate, we obtain a PEG ratio of 0.76, which indicates that the market is undervaluing the company's projected growth (a PEG ratio of 1 indicates a fairly valued company). Your analysis of the stock shouldn't end here. Rather, a good PEG ratio should alert you that it may be worthwhile to take a closer look at the stock.
The Business Is Unprofitable and Its Balance Sheet Is Highly Leveraged:
| 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | |
|---|---|---|---|---|---|---|
| Revenue (M) | $18,121 | $17,147 | $17,313 | $17,156 | $17,827 | $18,169 |
| Gross Margins | 47% | 46% | 45% | 42% | 40% | 41% |
| Net Margins | 6% | 7% | 7% | 19% | -9% | -3% |
| Net Income (M) | $1,097 | $1,173 | $1,195 | $3,323 | -$1,605 | -$463 |
| Net Interest Expense (M) | $188 | $196 | $173 | $159 | $235 | $277 |
| Depreciation & Amort. (M) | $1,089 | $1,343 | $1,462 | $1,323 | $1,602 | $1,261 |
| Diluted Shares (M) | 914 | 891 | 905 | 870 | 881 | 906 |
| Earnings Per Share | $1.14 | $1.25 | $1.29 | $3.5 | -$1.75 | -$0.51 |
| EPS Growth | n/a | 9.65% | 3.2% | 171.32% | -150.0% | 70.86% |
| Total Debt (M) | $3,427 | $4,939 | $5,705 | $6,473 | $7,270 | $7,035 |
| Net Debt / EBITDA | 0.62 | 1.3 | 0.91 | 2.22 | 83.53 | 4.51 |
| Current Ratio | 1.21 | 1.36 | 1.45 | 1.39 | 1.29 | 1.2 |
Koninklijke Philips has slimmer gross margins than its peers, declining EPS growth, and a highly leveraged balance sheet. Koninklijke Philips has just enough current assets to cover current liabilities, as shown by its current ratio of 1.2.
