For investors looking for chances where the market price may not completely show a company's inherent strength, a disciplined screening method can be a helpful first step. One such technique looks for stocks that join an attractive price with good fundamental condition, acceptable profit generation, and positive growth paths. This method tries to find possible picks for value investing, where the aim is to buy a dollar's worth of assets for less than a dollar, while making sure the business itself is on firm ground to back future gains.
Oceaneering International Inc (NYSE:OII) offers a situation that fits this screening idea. The company, a supplier of engineered services and robotic solutions mainly to the offshore energy industry, has managed a difficult sector to show a fundamental picture that deserves more attention from investors concentrated on intrinsic value.
Valuation: An Attractive Entry Point
The foundation of any value-focused study is price, and here OII seems to be notable. According to ChartMill's fundamental analysis, the stock gets a Valuation Rating of 7 out of 10, showing it is priced appealingly compared to its financial numbers and similar companies.
- Price-to-Earnings (P/E) Ratio: At 11.67, OII's P/E ratio is much lower than the S&P 500 average of about 27.2. More significantly, it costs less than almost 89% of similar companies in the Energy Equipment & Services industry, where the average P/E is much higher, above 53.
- Forward P/E and PEG Ratio: Its forward P/E of 14.33 stays below the market average and is less expensive than over 82% of industry rivals. Also, a low PEG ratio, which includes earnings growth, implies the stock's price is fair even when future growth estimates are taken into account.
For a value investor, these numbers indicate the market may be putting a large discount on OII, possibly because of the cyclical character of its main energy markets. This discount makes the "margin of safety" that value pioneers like Benjamin Graham stressed, offering a cushion against mistakes in estimates or unexpected declines.
Financial Health: A Steady Base
An inexpensive stock is only a good investment if the company is financially stable enough to last through economic cycles. OII gets a Health Rating of 5, showing an ordinary but steady financial state. Important solvency and liquidity measures show no clear warning signs.
- Balance Sheet Strength: The company's Altman-Z score of 3.84 points to a low short-term chance of financial trouble and is stronger than 84% of its industry peers.
- Debt Management: With a Debt-to-Equity ratio of 0.54, OII matches its industry. Importantly, this ratio has gotten better compared to a year ago, showing active handling of its capital structure.
- Liquidity Position: A Current Ratio of 1.97 and a Quick Ratio of 1.68 show enough ability to meet short-term debts, giving operational room to maneuver.
This part of the screen is key because it helps steer clear of "value traps", companies that are low-priced for a cause, often due to worsening finances. OII's average but steady health score implies it has the base to carry out its business plan while selling at a lower price.
Profitability: Showing Operational Effectiveness
A value stock should not only be low-priced and stable but also able to produce earnings. OII scores a good 7 for Profitability, highlighting efficient operations in spite of sector difficulties.
- Strong Returns: The company shows notable returns on capital, with a Return on Equity (ROE) of 25.58% and a Return on Invested Capital (ROIC) of 11.77%, each beating over 90% of its competitors.
- Getting Better Margins: Its Operating Margin of 11.72% is higher than the industry middle point and, significantly, has been increasing over recent years. This pattern shows improving operational effectiveness and pricing ability.
Good profitability is necessary for the value argument because it confirms the business model is functional. High returns on capital suggest the company can put earnings back to work well to support future growth, which should, in time, be acknowledged by the market.
Growth: A Way Ahead
Lastly, an adequate growth picture makes sure the company is not standing still. OII earns a Growth Rating of 6, backed by a strong recent earnings comeback and consistent forecasts.
- Past Performance: Earnings Per Share (EPS) increased greatly by over 114% in the last year, and the five-year average yearly EPS growth is more than 103%, showing a solid recovery period.
- Future Forecasts: Analysts predict EPS will keep growing at an average rate of almost 13% each year, with revenue growth expected near 5%.
While future growth is expected to be more measured than the sharp recovery of the past year, it stays positive. For value investors, this mix of a low price with continued, sensible growth outlooks can be especially effective, as it may result in a double advantage from both multiple improvement (the P/E ratio increasing toward industry averages) and earnings growth.
Conclusion
Oceaneering International Inc. shows a picture that fits a disciplined value-finding method: it is priced with a clear discount to both the wider market and its industry, keeps a steady financial foundation, provides strong profitability on its capital, and is set for continued earnings growth. This combination of elements implies the market may be setting too low a value on the company's operational recovery and its place within the energy services sector.
Interested in examining other stocks that match this picture? You can use the Decent Value Stocks screen to find more companies that meet similar standards of good price, adequate health, profitability, and growth.
For a complete look at all the fundamental numbers behind OII's ratings, you can examine the full ChartMill Fundamental Analysis Report for OII.
Disclaimer: This article is for information only and does not make up financial advice, a suggestion to buy or sell any security, or a support of any investment plan. Investors should do their own complete study and think about their personal financial situation and risk tolerance before making any investment choices.
