For investors looking for chances where the market price may not completely show a company's actual value, a systematic filtering process can help find possible choices. One such method is to look for stocks that show a high basic valuation score while also holding satisfactory ratings in other important areas like profitability, financial condition, and expansion. This technique tries to find companies that are available at appealing prices compared to their financial soundness and business results, a key part of classic value investment ideas. A recent filter using these standards has pointed to ITRON INC (NASDAQ:ITRI) as a stock deserving more examination.
A Detailed Examination of the Basic Picture
A thorough check of ITRON INC’s basic analysis report supplies the numerical support for its filter selection. The company, which offers technology and services for measuring and handling energy and water use, receives an overall basic rating of 6 out of 10. More significantly, its separate part ratings show a picture that matches the "satisfactory value" plan: a high valuation score held up by firm profitability and acceptable condition and expansion measures.
Valuation: The Main Draw
The strongest point for ITRI as a value possibility is found in its valuation numbers. The stock gets a high valuation rating of 7, meaning it is priced modestly relative to its finances. Important numbers backing this include:
- Price-to-Earnings (P/E) Ratio: At 16.00, ITRI's P/E ratio is much lower than both the S&P 500 average (26.57) and its industry group average (39.95). It is lower than about 86% of companies in its field.
- Forward P/E Ratio: The future-looking number of 15.83 also proposes a low valuation compared to the wider market and industry.
- Price-to-Free Cash Flow: This ratio is especially appealing, with ITRI being lower than 91% of its industry peers, meaning the market might be setting too low a value on the company's ability to generate cash.
For a value investor, these numbers are critical. They represent the "margin of safety", the cushion between the market price and an estimate of real worth. A low P/E and strong cash flow valuation imply the stock's price may not fully include the company's earning capacity.
Profitability: Showing Quality Operations
A low valuation by itself can be a value pitfall if the company does not have quality. Luckily, ITRI scores a very good 8 for profitability, implying the basic business is healthy. The report notes several positive points:
- Strong Margins: The company has a firm Profit Margin of 10.69% and an Operating Margin of 12.51%, both of which are in the high range of its industry.
- Getting Better Trends: Both profit and operating margins have shown good gain in recent years, meaning positive operational speed.
- Effective Use of Capital: Return on Equity (15.21%) and Return on Invested Capital (8.96%) are some of the best in the industry, showing management is efficiently using capital to create profits.
This high profitability rating is essential for the value plan. It means that the company being bought at a lower price is not a failing business but one with a confirmed ability to create returns, lowering the risk linked to a low valuation.
Financial Condition and Expansion: Holding Up the Argument
While not top strengths, ITRI's scores in financial condition (5) and expansion (5) are sufficient and do not signal major warnings, supporting the "satisfactory" part of the filter.
- Financial Condition: The company keeps a sound Current Ratio of 2.17, showing good short-term cash availability. Its Debt-to-Free-Cash-Flow ratio of 3.65 is also good, meaning it could pay off debt from cash flow in a practical period. Some points of attention are mentioned, like an Altman-Z score that means only some bankruptcy risk but is under industry average, and a rise in debt/assets compared to a year ago.
- Expansion: The expansion story is varied but shows encouraging speeding up. While revenue expansion has been flat in the past, it is predicted to speed up to almost 5% each year moving forward. More notably, Earnings Per Share (EPS) has grown at over 11% each year in recent years and is forecast to speed up to over 13% expansion later. This positive EPS path is a key element, as value investment does not need fast expansion, but maintainable earnings expansion helps narrow the space between market price and real worth over time.
Summary
ITRON INC offers an example of using a systematic value filter. The stock is not the lowest priced in an absolute sense, nor does it have the greatest expansion picture. Instead, it provides a balanced mix: a valuation that seems noticeably lower compared to the market and its peers, supported by very good profitability, fair financial condition, and a speeding up earnings expansion picture. This matching of elements implies the market may be valuing too low the company's steady cash creation and getting better operational effectiveness.
Investors curious about finding other stocks that match this "satisfactory value" picture can use the same filter on their own.
Disclaimer: This article is for information only and does not make up financial guidance, a suggestion to buy or sell any security, or a support of any investment plan. The examination is based on data and ratings supplied by ChartMill, and investors should do their own research and think about their personal financial situation before making any investment choices.
