For investors looking for chances where a company's market price seems separate from its actual business condition, a systematic value investing method can be a useful instrument. This approach focuses on finding stocks selling for less than their calculated true worth, frequently indicated by good valuation measures, while confirming the company has the financial soundness and earnings ability to support a greater price in the future. A "decent value" screen uses this thinking by selecting for companies with good valuation ratings that also show firm basics in expansion, earnings, and financial soundness. This technique aims to bypass "value traps", inexpensive stocks that are inexpensive for a declining cause, by needing a foundation of operational soundness.
Axalta Coating Systems Ltd (NYSE:AXTA), a worldwide producer of liquid and powder coatings for the vehicle and industrial fields, appears as a selection from this kind of filtering process. The company's most recent basic analysis report indicates a picture that could interest value-focused investors searching for a mix of fair price and business condition.
Valuation: An Appealing Starting Price
The central idea of value investing is buying a dollar of assets for fifty cents. AXTA's valuation measures show the stock is priced cautiously compared to both its field and the wider market, offering a possible buffer.
- Price-to-Earnings (P/E): AXTA sells at a P/E ratio of 11.70, seen as fair by itself. This appears more interesting when measured against its field average of about 20.02, meaning more than 76% of its chemical industry counterparts are higher priced on this measure.
- Comparison to the Market: The valuation difference increases more against the S&P 500, which has an average P/E of about 26.41. This places AXTA as comparatively low cost within the bigger market setting.
- Forward-Looking Measures: The view stays uniform with a forward P/E of 10.46, which is also lower cost than most industry rivals. Other calculations like Enterprise Value to EBITDA and Price to Free Cash Flow further back the opinion that AXTA is valued at a reduction.
For a value investor, these ratios are the first step, hinting the market might be pricing the company's earnings ability too low.
Profitability: Showing Business Condition
A low cost valuation only matters if the actual business is stable. This is where AXTA's picture becomes firmer, as high earnings ability is a main protection from the dangers of a value trap. The company receives a firm ChartMill Profitability Rating of 9 out of 10.
- Firm Returns: AXTA produces a Return on Equity (ROE) of 19.96%, doing better than almost 89% of its field. This shows efficient use of investor money.
- Good Margins: The company's operating margin of 15.97% and profit margin of 8.81% are both strong relative to the industry, each doing better than over 80% of peers. Also, these margins have displayed gain in recent years, a good direction in operational performance.
- Steady Earnings: The company has been profitable with positive operating cash flow in every one of the last five years, showing financial steadiness.
This earnings picture is key. It hints that AXTA's lower valuation is not a sign of a failing business model but could be a market mistake.
Financial Health: A Varied but Controllable View
Financial soundness makes sure a company can withstand economic declines and keep operating without trouble. AXTA's health rating is a middle 5 out of 10, giving a even view with clear positives and observed negatives.
- Liquidity Positives: The company displays good short-term financial adaptability with a Current Ratio of 2.20 and a Quick Ratio of 1.59, showing no urgent issue in meeting its duties.
- Debt Points: The main point of care comes from the company's debt level. A Debt-to-Equity ratio of 1.49 shows a notable dependence on debt funding, putting it in the lower third of its field. The Debt to Free Cash Flow ratio of 10.04 also suggests a long time would be needed to pay off debt from present cash flows.
- Balancing Items: Notably, the company's Altman-Z score, a gauge of bankruptcy risk, is in a satisfactory area and better than two-thirds of its peers. Also, AXTA has been lowering its share count over recent years, which is a move favorable to shareholders.
For a value investor, this health review highlights the need for close examination. The firm earnings ability helps manage the debt, but the debt level is an item that needs watching.
Growth: Steady with Good Indicators
While not a fast-expansion story, AXTA displays a steady and gaining earnings path that can aid a price change. Its Growth Rating is 4 out of 10.
- Earnings Direction: Over the last year, Earnings Per Share (EPS) increased by a notable 20.77%. Looking ahead, analysts project average yearly EPS increase of about 10.08%, which shows a quickening from the past five-year pattern.
- Revenue Setting: Sales increase is more quiet, with a small drop last year and low expectations moving forward. This points out that recent profit rise is probably pushed by margin gain and efficiency improvements, a good signal of management performance.
In value investing, rapid expansion is not a requirement. Reliable, profitable increase at a fair price is often the aim, and AXTA's projected EPS quickening fits that objective.
Conclusion
Axalta Coating Systems presents a situation where a orderly filtering process finds a difference. The stock is valued at a clear reduction to its field and the market, yet it runs a profitable business with firm returns and gaining margins. The company's debt level is an item for careful review, but it is balanced by firm liquidity and strong earnings ability that can maintain the debt setup. For investors using a value method, AXTA stands for the kind of chance where the market's present price may not completely show the company's true business value.
A full list of all basic items is ready in the complete Axalta Coating Systems Fundamental Analysis Report.
This review of AXTA came from a "Decent Value" filtering method. Investors curious in finding other companies that fit similar standards of appealing valuation combined with decent basics can examine the filter more through this link: Find More Decent Value Stocks.
Disclaimer: This article is for information only and does not form financial guidance, a suggestion to buy or sell any security, or a support of any investment method. All investments carry risk, including the possible loss of original money. Readers should do their own study and talk with a qualified financial consultant before making any investment choices.
