FEDERATED HERMES INC (NYSE:FHI): A Value Investment with Strong Fundamentals

Investment methods often try to find differences between a company's market price and its actual value, and one organized way to do this uses filters to find stocks with good fundamental qualities that are also available at appealing prices. A "Decent Value" filter uses this idea by selecting for equities that have a high valuation rating, meaning they trade inexpensively compared to their financial numbers, while also holding good scores in profitability, financial condition, and expansion. This multi-part review helps find companies that are not just low-priced on paper but are also supported by business strength and steadiness, possibly providing a safety buffer for investors concentrating on long-term worth.

Valuation Measurements

A foundation of value investing is buying assets for less than their calculated actual value, and FEDERATED HERMES INC (NYSE:FHI) presents a strong case on this point. The company's valuation rating of 8 out of 10 is supported by several important measurements that indicate the stock is priced cautiously.

• The Price/Earnings ratio of 10.21 is much lower than the S&P 500 average of 25.65, suggesting a possibly underappreciated status in the wider market.
• This appealing valuation applies to its industry, as FHI is less expensive than 68% of similar companies in the capital markets sector based on its P/E ratio.
• Adding to this, the Price/Forward Earnings ratio of 9.98 is also notably below the S&P 500 average and is more appealing than 69% of industry rivals.
• The Enterprise Value to EBITDA ratio indicates a very inexpensive valuation, with FHI being less costly than 92% of its industry peers.

For a value investor, these measurements are vital as they offer a numerical basis for thinking the stock's market price could be less than its actual value, forming a possible opening for price increase as the market adjusts this difference.

Financial Condition

Benjamin Graham, a pioneer of value investing, strongly stressed the significance of a company's monetary stability to endure economic slumps. FHI is very good in this area, having a superb condition rating of 9 out of 10. The company shows a strong balance sheet with low debt and good cash availability.

• A Debt/Equity ratio of 0.29 shows a careful financial structure and is more favorable than 73% of industry peers.
• The company's high ability to meet obligations is shown by a Debt to Free Cash Flow ratio of 1.34, meaning it could in theory pay off all its debt in just over one year using its present cash flow. This ratio is stronger than 89% of the industry.
• Good near-term monetary steadiness is shown by a Current Ratio and Quick Ratio of 3.13, both of which are more favorable than 81% of rivals.

This outstanding financial condition supplies that important safety buffer, lowering the chance of a lasting loss of investment, a main worry for any method based on value.

Profitability Quality

While a low price is important, value investing steers clear of "value traps" by also needing that a company is fundamentally earning and effective. FHI's profitability rating of 8 out of 10 verifies its operational quality. The company not only makes earnings but does so with notable effectiveness compared to the capital used.

• It has sustained profitability and positive operational cash flow steadily over the last five years.
• Its Return on Invested Capital (ROIC) of 18.60% is very good, performing better than 95% of its industry peers and displaying a rising pattern.
• In a similar way, a Return on Equity of 30.66% and a Return on Assets of 16.68% are both in the highest group of its industry, surpassing 96% of competitors.

These high returns on capital indicate a high-grade business with a lasting market advantage, which is a key characteristic value investors look for to make sure that actual value will probably increase over time.

Expansion Outlook

Even though strict value investing occasionally values price more than expansion, a company with sensible expansion outlook can improve the investment case. FHI's expansion rating of 4 out of 10 is the less strong part of its summary but includes good aspects. While sales expansion has been slow, the company displays good momentum in earnings and positive future forecasts.

• Earnings Per Share increased by a notable 54% over the past year.
• Analysts anticipate this strength to persist, forecasting an average yearly EPS expansion of 14% in the next few years.
• The company's payout ratio is a maintainable 28.5%, and it has a dependable history of raising its dividend, which presently offers a 2.86% return.

This mix of earnings expansion and a shareholder-aligned dividend policy can add to total gains while an investor anticipates the valuation difference to narrow.

Summary

FEDERATED HERMES INC presents a summary that fits well with the ideas of value investing. It trades at a notable discount to the market and its industry based on common valuation measurements, while being supported by a very strong financial base and highly effective, profitable activities. Its expansion, especially in earnings, supplies a positive driver. This mix of a low price, high quality, and sensible expansion possibility makes FHI a stock deserving of more review for those using a value-focused method.

For investors curious about finding other companies that match a similar outline of good fundamentals and appealing valuation, you can examine the Decent Value Stocks screen for more possible ideas.

Disclaimer: This article is for informational purposes only and does not constitute financial advice, a recommendation to buy or sell any security, or an endorsement of any investment strategy. All investments involve risk, including the possible loss of principal. You should conduct your own research and consult with a qualified financial advisor before making any investment decisions.