Critical Analysis – Is Investing in Vale (VALE) a Wise Choice?

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.

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.