AXALTA COATING SYSTEMS LTD (NYSE:AXTA) Presents a Compelling Value Investment Case

In the world of value investing, the search for undervalued stocks often begins with a disciplined screening process that balances valuation with fundamental strength. The "Decent Value" screen, which identifies companies with good valuation metrics while maintaining acceptable profitability, financial health, and growth, serves as a practical starting point for investors seeking opportunities where the market may have overlooked intrinsic worth. One such candidate from this screen is AXALTA COATING SYSTEMS LTD (NYSE:AXTA), a global coatings manufacturer whose current financial profile suggests it may be trading below its fair value.

Valuation Metrics

AXTA's valuation metrics are notable, receiving a ChartMill Valuation Rating of 7 out of 10. This score reflects several attractive pricing characteristics relative to both industry peers and broader market indices:

• A Price/Earnings ratio of 12.73, which is cheaper than 79.5% of chemical industry competitors and significantly below the S&P 500 average of 27.2
• A Forward P/E of 11.06, indicating continued valuation appeal based on future earnings projections
• Positive marks for Enterprise Value/EBITDA and Price/Free Cash Flow ratios, both ranking favorably against industry benchmarks

These valuation metrics are crucial for value investors because they represent the gap between market price and intrinsic value that Benjamin Graham identified as the core opportunity in value investing. When a company demonstrates strong fundamental qualities while trading at discounted multiples, it creates the "margin of safety" that protects investors against estimation errors and market volatility.

Profitability Strength

The company's profitability profile is notably solid, achieving a ChartMill Profitability Rating of 8 out of 10. This strength appears in several key areas:

• Return on Equity of 19.69%, outperforming 89% of industry peers
• Profit Margin of 8.58%, ranking among the top performers in the chemicals sector
• Consistent improvement in operating margins over recent years
• Strong Return on Invested Capital of 9.86%, exceeding the cost of capital and indicating efficient use of investor funds

For value investors, sustained profitability is essential because it validates that the company possesses durable competitive advantages and operational efficiency. A fundamentally profitable business trading at discounted valuations represents the classic value opportunity, a quality enterprise temporarily priced below its true worth.

Financial Health Assessment

AXTA's financial health presents a mixed but generally acceptable picture, with a ChartMill Health Rating of 5 out of 10. The analysis reveals:

• Solid liquidity metrics with a Current Ratio of 2.12 and Quick Ratio of 1.53
• Reduced share count over recent years, indicating shareholder-friendly capital allocation
• Some concern regarding leverage, with a Debt-to-Equity ratio of 1.50 that exceeds industry norms
• Debt-to-Free Cash Flow ratio of 8.27, suggesting a longer timeline for debt repayment than ideal

While the leverage situation warrants monitoring, the company's overall financial health remains sufficient for value investment consideration. The importance of financial health in value investing cannot be overstated, it ensures the company can withstand economic downturns and continue operations while the market eventually recognizes its intrinsic value.

Growth Prospects

The growth profile shows moderate but positive characteristics, with a ChartMill Growth Rating of 4 out of 10:

• Strong recent EPS growth of 25.39% in the past year
• Expected future EPS growth of nearly 11% annually
• Revenue growth has been modest but stable, with slight contraction in the most recent year
• Positive evolution in EPS growth acceleration expected in coming years

For value investors, moderate growth combined with attractive valuation creates an ideal scenario, the company doesn't need explosive growth to justify investment, but possesses enough growth potential to drive price appreciation as valuations normalize.

Investment Considerations

The full fundamental analysis report reveals a company that appears undervalued relative to its profitability and financial characteristics. While not without concerns, particularly regarding debt levels and recent revenue performance, AXTA's combination of strong profitability, reasonable valuation, and adequate financial health aligns well with value investment criteria.

Value investors should note that the coatings industry is somewhat cyclical, and AXTA's performance may be influenced by industrial production trends and automotive sector dynamics. However, the company's market position and operational efficiency provide a reasonable foundation for long-term value realization.

For investors interested in exploring similar opportunities, additional screening results using the Decent Value methodology can be found through this customized stock screen.

Disclaimer: This analysis is provided for informational purposes only and should not be construed as investment advice. All investment decisions should be based on individual research and consultation with qualified financial professionals. Past performance is not indicative of future results.