Today we're going to take a closer look at Large-Cap Basic Materials company Vale, whose shares are currently trading at $11.16. 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!
The Market May Be Undervaluing Vale's Assets and Equity:
Vale S.A., together with its subsidiaries, produces and sells iron ore, iron ore pellets, nickel, and copper in Brazil and internationally. The company belongs to the Basic Materials sector, which has an average price to earnings (P/E) ratio of 22.71 and an average price to book (P/B) ratio of 3.12. In contrast, Vale has a trailing 12 month P/E ratio of 6.2 and a P/B ratio of 0.26.
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 -0.31. 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.
Wider Gross Margins Than the Industry Average of 23.0%:
| 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | |
|---|---|---|---|---|---|---|
| Revenue (M) | $36,575 | $36,549 | $39,545 | $54,502 | $43,839 | $41,784 |
| Gross Margins | 40% | 47% | 56% | 60% | 45% | 42% |
| Net Margins | 19% | -5% | 12% | 41% | 43% | 19% |
| Net Income (M) | $6,860 | -$1,683 | $4,881 | $22,445 | $18,788 | $7,983 |
| Net Interest Expense (M) | -$4,957 | -$3,393 | -$4,813 | $3,119 | $2,268 | -$1,946 |
| Depreciation & Amort. (M) | $3,211 | $3,503 | $1,254 | -$3,962 | $1,309 | $1,428 |
| Diluted Shares (M) | 5,126 | 5,126 | 5,130 | 4,840 | 4,779 | 4,539 |
| Earnings Per Share | $1.34 | -$0.33 | $0.95 | $4.47 | $3.93 | $1.76 |
| Free Cash Flow (M) | $9,117 | $8,406 | $9,892 | $20,646 | $13,316 | $11,332 |
| CAPEX (M) | $3,784 | $3,704 | $4,430 | $5,033 | $5,446 | $5,920 |
| Current Ratio | 1.68 | 1.23 | 1.67 | 1.47 | 1.12 | 1.28 |
Vale has generally positive cash flows, slight revenue growth and increasing reinvestment in the business, and wider gross margins than its peer group. Furthermore, Vale has just enough current assets to cover current liabilities, as shown by its current ratio of 1.28.
