A strong performer from today's afternoon trading session is Vale, whose shares rose 1.1% to $10.28 per share. For those of you thinking about investing in the stock, here is a brief value analysis of the stock using the company's basic fundamental ratios.
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 23.66 and an average price to book (P/B) ratio of 2.69. In contrast, Vale has a trailing 12 month P/E ratio of 4.6 and a P/B ratio of 0.21.
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 -0.28. 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 26.25%:
| 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.
