Axalta Coating Systems Ltd (NYSE:AXTA): An Undervalued Stock with Strong Fundamentals

The search for undervalued companies with solid basic business foundations is a central part of value investing. This method involves finding stocks trading for less than their inherent worth, often indicated by good valuation measures, while confirming the company keeps financial stability and earnings to support future expansion. A structured method for this involves filtering for stocks that rate highly on valuation without giving up quality in other important areas.

Axalta Coating Systems Ltd (NYSE:AXTA), a worldwide maker of coatings for the automotive and industrial segments, recently appeared through such a filtering process. The selection rules aimed at companies with a good basic valuation rating while still showing acceptable scores in earnings, financial stability, and expansion. AXTA seems to match this description, making a case for being an undervalued stock deserving of more examination.

Valuation Metrics

For value investors, the price paid for a stock is very important. A low valuation compared to earnings and cash flow is the main sign of a possible good deal, providing the "margin of safety" that Benjamin Graham famously supported. Axalta's basic report points out very good valuation traits.

• Price-to-Earnings (P/E) Ratio: At 11.41, AXTA's P/E ratio is much lower than the industry average of 31.31 and the S&P 500's average of 27.53. This places it less expensive than 83% of similar companies in the chemicals industry.
• Forward P/E Ratio: The forward P/E of 9.92 further supports the good valuation, being less expensive than 80% of industry rivals and well under the wider market.
• Enterprise Value to EBITDA & Price-to-Free Cash Flow: Both of these important valuation measures also show a company priced more cheaply than most of its industry peers, suggesting the market may be setting too low a value on its ability to generate cash.

Profitability Strength

A low stock price is only a good opportunity if the company is fundamentally healthy and profitable. A high earnings rating confirms that the low valuation is not a sign of a struggling business, but possibly a market mistake. Axalta does very well in this area, which is important for confirming its value case.

The company's earnings rating is a solid 8 out of 10. Main factors include a Return on Equity of 19.69%, which does better than almost 90% of the industry, and a Profit Margin of 8.58%, which also places in the top group. Also, its Operating Margin of 15.66% is good and has shown gain in recent years, pointing to effective management and the ability to set prices within its markets.

Financial Health Assessment

Financial stability is a protection against value traps, companies that seem cheap but are weighed down by too much debt or cash flow problems. A moderate stability rating implies the company can handle economic slumps and pay for its operations without difficulty. Axalta gets a stability rating of 5, which shows a varied but workable situation.

• Positive Liquidity: The company displays good short-term financial strength with a Current Ratio of 2.12 and a Quick Ratio of 1.53, showing no urgent issue in paying its bills.
• Debt Considerations: The analysis mentions a high Debt-to-Equity ratio of 1.50, showing a dependence on debt for funding. However, it is important to see this within the context of the capital-heavy chemicals industry. The report also says that the Debt-to-Free-Cash-Flow ratio, while high, is actually more favorable than most similar companies.

Growth Prospects

While pure value investing may not focus on fast expansion, an acceptable growth outline helps make sure the company's earnings and inherent value are increasing, which can in time be acknowledged by the market. Axalta's growth rating of 4 shows a consistent, if not remarkable, path.

The company has shown a notable 25.39% growth in Earnings Per Share over the past year, and analysts project EPS to keep increasing at an average rate of almost 11% per year. While sales growth has been more limited, the quickening EPS growth rate is a good sign that operational betterments and efficiency increases are happening.

Conclusion

Axalta Coating Systems offers an interesting profile for investors using a value-based method. The stock is valued at a major discount to both its industry and the wider market, as shown by its good valuation rating. This possible good deal is supported by high earnings and sufficient cash availability. The main area for review is its debt amount, though this seems to be a common industry habit rather than an exception. For investors looking for companies that are inexpensive but not unsound, AXTA justifies more study based on its basic data.

You can view the full, detailed fundamental analysis report for AXTA here.

This evaluation of Axalta Coating Systems Ltd was found using a filtering method centered on locating acceptable value possibilities. If you are interested in finding other companies that match this outline, you can find more results using this filtering link.

Disclaimer: This article is for informational purposes only and does not constitute financial advice, a recommendation to buy or sell any security, or an offer to solicit any transaction. All investing involves risk, including the possible loss of principal. Investors should conduct their own independent research and consult with a qualified financial advisor before making any investment decisions.