Chemicals company DuPont de Nemours is taking Wall Street by surprise today, falling to $73.8 and marking a -3.2% change compared to the S&P 500, which moved -1.0%. DD is -5.1% below its average analyst target price of $77.77, which implies there is more upside for the stock. However, the average analyst rating for the stock is hold -- a more pessimistic outlook than you might expect. Over the last year, DuPont de Nemours has underperfomed the S&P 500 by -19.7%, moving 3.7%.
DuPont de Nemours, Inc. provides technology-based materials and solutions in the United States, Canada, the Asia Pacific, Latin America, Europe, the Middle East, and Africa. The company belongs to the industrials sector, which generally includes cyclical companies -- with the exception of conglomerates whose business may span several industries. Cyclical companies experience higher sales during periods of economic expanision, and worsening outlooks during recessions.
DuPont de Nemours's trailing 12 month P/E ratio is 67.7, based on its trailing EPS of $1.09. The company has a forward P/E ratio of 17.7 according to its forward EPS of $4.17 -- which is an estimate of what its earnings will look like in the next quarter. As of the first quarter of 2023, the average Price to Earnings (P/E) ratio for US industrials companies is 22.19, and the S&P 500 has an average of 15.97. The P/E ratio consists in the stock's share price divided by its earnings per share (EPS), representing how much investors are willing to spend for each dollar of the company's earnings. Earnings are the company's revenues minus the cost of goods sold, overhead, and taxes.
To better understand DD’s valuation, we can divide its price to earnings ratio by its projected five-year growth rate, which gives us its price to earnings, or PEG ratio. Considering the P/E ratio in the context of growth is important, because many companies that are undervalued in terms of earnings are actually overvalued in terms of growth.
DuPont de Nemours’s PEG is 2.21, which indicates that the company is overvalued compared to its growth prospects. Bear in mind that PEG ratios have limits to their relevance, since they are based on future growth estimates that may not turn out as expected.
Value investors often analyze stocks through the lens of its Price to Book (P/B) Ratio (its share price divided by its book value). The book value refers to the present value of the company if the company were to sell off all of its assets and pay all of its debts today - a number whose value may differ significantly depending on the accounting method. Dupont de nemours's P/B ratio indicates that the market value of the company exceeds its book value by a factor of 1.31, but is still below the average P/B ratio of the Industrials sector, which stood at 4.06 as of the first quarter of 2023.
Since it has a higher P/E ratio than its sector average, a lower P/B ratio than its sector average, and No published cashflows with an unknown trend, DuPont de Nemours is likely overvalued at today's prices. The company has poor growth indicators because of no PEG ratio and no published profit margins with a unknown rate of growth. We hope you enjoyed this overview of DD's fundamentals. Be sure to check the numbers for yourself, especially focusing on their trends over the last few years.
