For investors looking for chances in the market, the principles of value investing provide a proven structure. This method, established by Benjamin Graham and notably used by Warren Buffett, centers on finding companies priced below their inherent worth. The aim is to buy these underappreciated stocks with an adequate "margin of safety," offering protection against mistakes in analysis and market swings, and keep them for an extended time as the market adjusts the price difference. A careful method involves examining a company's basics, its financial condition, earnings capability, expansion path, and present price, to tell a true bargain from a poor investment. One stock that recently appeared through a methodical filter for "reasonable value" is National Fuel Gas Co. (NYSE:NFG).
Examining the Basics More Closely
The choice process for National Fuel Gas Co. used a basic filter centered on ChartMill's own ratings. The filter looked for stocks with a Valuation rating higher than 7, meaning they are priced low compared to their basics, while also needing acceptable scores in Profitability, Financial Health, and Growth. This layered filter tries to locate companies that are not only low-priced, but low-priced without a clear cause, a central idea of value investing that looks for good businesses at a reduced price. NFG's full basic analysis report shows a combined score of 6 out of 10, with strong showings in important areas that match this method.
Valuation: The Foundation of the Idea NFG’s most persuasive feature for a value investor is its price, which scores a 7. The numbers indicate the stock is trading at a lower price relative to both its industry and the wider market.
- Its Price-to-Earnings (P/E) ratio of 12.02 is lower than almost 79% of similar companies in the Gas Utilities industry and is notably under the S&P 500 average of about 27.
- The forward-looking Price/Forward Earnings ratio of 10.24 is more appealing, rated lower than more than 92% of industry rivals.
- The company’s Enterprise Value to EBITDA ratio also shows that a large majority (85.71%) of the industry carries a higher price.
For a value investor, these numbers are the initial step. They hint the market might be pricing NFG too low given its future earnings possibility, creating the possible opening the method aims to use.
Profitability: Showing Business Strength A low-priced stock is only a wise investment if the core business is stable. NFG performs well here, getting a high Profitability rating of 8. The company shows steady and effective operations, which is key for value investing as it points to a lasting competitive edge and the capacity to produce returns over the long holding time.
- Return Numbers: NFG's Return on Assets (7.12%) and Return on Equity (18.26%) are some of the highest in its industry, beating 100% and 93% of peers, in order.
- Strong Margins: The company works with a very good Operating Margin of 42.17% and an outstanding Gross Margin of 90.18%, both numbers putting it at the forefront of its field.
This high degree of profitability gives assurance that the company's inherent worth is backed by strong operational results, not just financial statements.
Growth and Financial Health: Evaluating Longevity Value investing is not about inactive companies; lasting expansion and a firm balance sheet are important for the "margin of safety." NFG shows a varied but generally satisfactory view in these parts, with a Growth rating of 6 and a Financial Health rating of 5.
Growth Points:
- The company has displayed notable recent expansion, with Earnings Per Share (EPS) rising 40.31% and Revenue increasing 20.86% over the past year.
- Longer-period patterns are good, with an average yearly EPS growth of 18.56% and Revenue growth of 8.05% over recent years.
Health Points:
- Positives: NFG has been lowering its debt/assets ratio and has a smaller number of shares outstanding than a year ago, which are actions good for shareholders. Its Debt/Equity ratio of 0.61 is stronger than 93% of its industry.
- Points to Note: The report mentions a low Current Ratio (0.65) and Quick Ratio (0.59), which could signal possible near-term cash flow limits. However, it is useful to view this within the asset-heavy utilities sector, where such ratios are typical. The Altman-Z score, while in a watchful area, is still the highest in its industry.
The expansion outline suggests the business is growing, while the health numbers, although showing some pressure, are mostly similar to or better than industry standards. For a value investor, this mix indicates the company is financially stable enough to persist until the market acknowledges its worth.
Summary and Points for Investors
National Fuel Gas Co. displays a outline that matches several main value investing measures. It seems basically underappreciated based on common earnings measures, runs a very profitable business in its field, and has shown steady growth. While investors should thoughtfully note the mentioned cash flow numbers within the setting of the utility business model, the overall basic view indicates a company trading at a price that may not completely show its operational strength.
This review of NFG came from a methodical hunt for stocks fulfilling particular value-focused measures. For investors curious in finding other companies that match a similar outline of good price along with acceptable basics, you can review the set Decent Value Stocks filter.
Disclaimer: This article is for information only and is not financial guidance, a suggestion, or an offer or request to buy or sell any securities. The review is based on data and ratings from ChartMill, and investors should do their own research and think about their personal financial situation and risk comfort before making any investment choices. Previous results do not guarantee future outcomes.
