For investors looking for chances where a company's market price seems separate from its actual business condition, a structured value investing method can be a useful guide. This strategy, supported by people like Benjamin Graham and Warren Buffett, focuses on finding stocks selling for less than their calculated worth while having good financial condition. One useful way to apply this is by searching for companies that rate well on measures of price but still show acceptable basics in earnings, expansion, and financial strength. This pairing tries to locate discounted chances that are not value traps, companies that are inexpensive for a clear cause, but instead possibly missed good businesses.
A present search using this thinking has identified Euronet Worldwide Inc. (NASDAQ:EEFT), a worldwide supplier of electronic payment and transaction handling services. Working through its Electronic Funds Transfer (EFT), epay, and Money Transfer divisions, Euronet supports a large system of ATMs, point-of-sale terminals, and cross-border payment offerings. An examination of its basic report indicates it may match the description of a discounted stock with a solid operating base.
Notable Valuation Measures
The central idea of value investing is buying assets worth one dollar for fifty cents. Euronet's present valuation measures imply the market may be providing such a price reduction. The company's ChartMill Valuation Rating is a high 9 out of 10, signaling a basically low-priced stock.
- Price-to-Earnings (P/E) Ratio: At 7.94, Euronet's P/E ratio is labeled "very cheap" and is much lower than the S&P 500 average of about 28. It is also less expensive than around 76% of similar companies in the Financial Services field.
- Forward P/E Ratio: An even smaller forward P/E of 6.61, using earnings forecasts, supports the good valuation, putting it below 83% of industry rivals.
- Enterprise Value to EBITDA: This measure, which includes debt, also shows a view of low pricing, with more than 92% of industry firms being costlier than Euronet.
For a value investor, these numbers represent the first safety margin, the cushion between the price paid and the judged real worth. The small multiples indicate that even if future expansion is average, the risk of loss may be contained by the already low price.
Evaluating Financial Condition and Earnings
A low-priced stock is only a sound investment if the company is financially secure and able to produce earnings. This is where many possible "value traps" fall short. Euronet's ratings here are middling but steady, which, combined with its low price, becomes more interesting.
The company gets a ChartMill Health Rating of 5 and a Profitability Rating of 6. Important details consist of:
- Earnings Strength: Euronet shows very good returns on capital. Its Return on Equity (ROE) of 24.00% and Return on Invested Capital (ROIC) of 14.63% are better than almost 90% of its industry counterparts. A reliably high ROIC is a sign of a company with a lasting competitive edge, a key factor for value investors searching for long-term investments.
- Financial Soundness: The company's solvency and cash availability measures are generally similar to or a bit better than industry averages. Its Altman-Z score shows little immediate risk of failure, and its quick ratio indicates enough cash to cover near-term debts. While the debt-to-free-cash-flow ratio is seen as a minor weak point, it stays similar to the industry middle point.
This description points to a company that is not in financial trouble but is using its capital effectively to create strong profits, a vital mix that implies the low price is not because of a failed business plan.
Expansion Path and Future Prospects
Value does not imply no growth. A company with a sensible expansion path can help reduce the difference between its market price and real worth more quickly. Euronet's Growth Rating is a 5, backed by a blend of past results and future forecasts.
- Historical and Expected Expansion: The company has provided steady, though not rapid, growth. Income has risen at an average pace of 7.73% over recent years, with EPS growth speeding up. More significantly, analysts forecast EPS to increase by an average of 13.52% each year in the near future.
- Quickening Earnings: The basic report states that the EPS growth pace is quickening from its past pattern. For a value investor, this forecasted quickening in earnings, when joined with a very small earnings multiple, can be a strong force for share price growth as the market updates its forecasts.
Final Summary
Euronet Worldwide offers an example in the contemporary value investing search: a company trading at very low multiples while keeping better-than-average earnings on capital and a sound financial foundation. Its activities in electronic payments and money transfer connect to lasting long-term movements toward digital finance and global money sending. The difference between its strong returns on capital (ROE of 24%, ROIC of 14.63%) and its single-digit P/E ratio is the type of separation value methods aim to use.
Naturally, investors must perform their own complete careful research. The full ChartMill Fundamental Analysis Report for EEFT gives a complete summary of all measures talked about.
This review of Euronet Worldwide came from a methodical hunt for acceptable value stocks. For investors wanting to examine other companies that fit similar standards of good valuation scores combined with acceptable basics, more outcomes can be located using this Decent Value Stocks screen.
Disclaimer: This article is for informational purposes only and does not constitute financial advice, a recommendation, or an offer to buy or sell any security. The author has no position in the stock mentioned. Investing involves risk, including the potential loss of principal. Readers should conduct their own research and consult with a qualified financial advisor before making any investment decisions.
