Sanmina Corp (NASDAQ:SANM): A Value Stock with Strong Fundamentals

Investors looking for undervalued opportunities often use screening strategies that focus on stocks trading below their intrinsic value while having good underlying business fundamentals. The "Decent Value" screen looks for companies with strong valuation ratings, meaning they are priced low relative to their industry or the wider market, but also demands acceptable scores in profitability, financial health, and growth. This method tries to find companies where the market might not recognize their actual value, possibly providing a safety buffer for investors focused on value. Sanmina Corp (NASDAQ:SANM) recently appeared from this kind of screening process, justifying a more detailed look at its investment profile.

Valuation Metrics

A fundamental part of value investing is finding securities where the market price is much lower than the calculated intrinsic value. Sanmina's valuation metrics indicate it is trading at a lower price compared to similar companies.

• The company's Price/Earnings (P/E) ratio of 20.22 is less expensive than 82% of the companies in the Electronic Equipment, Instruments & Components industry, which has an average P/E of 34.65. It also trades at a lower price than the S&P 500's average P/E of 27.41.
• Its Price/Forward Earnings ratio of 16.65 is more favorable, priced lower than 85% of its industry peers and under the S&P 500 average of 22.87.
• The stock seems even more interesting based on cash flow, with a Price/Free Cash Flow ratio that is less than 90% of the industry.

This lower valuation is an important first step, as it offers the possible gain that value investors look for. However, a low price is only interesting if the company is fundamentally stable, which is why the screen also checks for health and profitability. You can see the complete details in the fundamental analysis report for SANM.

Financial Health

A company's financial health is very important for value investors, as it lowers the chance of permanent loss of money and shows strength during economic difficulties. Sanmina gets a good Health rating of 6 out of 10. The company shows high solvency, with a low Debt-to-Free Cash Flow ratio of 0.84, meaning it could pay off all its debt in under a year. This ratio is more favorable than 83% of its competitors. Also, Sanmina has a good Debt-to-Equity ratio of 0.13 and has been lowering its number of shares outstanding over the last few years, which can indicate management that considers shareholders. Although there are small worries about liquidity ratios like the Current and Quick ratios being under the industry median, the overall balance sheet indicates a stable financial base.

Profitability Analysis

Strong and steady profitability is what frequently confirms a low valuation, changing a stock that looks inexpensive into a real value chance. Sanmina performs well here, getting a Profitability rating of 7. The company produces good returns on capital, with a Return on Invested Capital (ROIC) of 9.82% that is higher than 83% of its industry peers. Its Return on Equity (ROE) of 11.30% is also good, exceeding 77% of competitors. Significantly, both its Profit Margin (3.22%) and Operating Margin (4.70%) have gotten better in recent years and are in the top half of the industry. This reliable ability to turn revenue into profit is a main sign of a good business that might be currently priced too low by the market.

Growth Prospects

While pure value investing may not focus on fast growth, a company needs to have feasible growth prospects to make sure its intrinsic value grows over time. Sanmina's Growth rating of 5 shows a varied but getting better situation. In one area, Revenue has had a small decrease over the past several years. In another area, Earnings Per Share (EPS) has grown by an average of 9.20% each year, including a 10.25% rise over the last year. Most positively for the future, analysts predict a speed-up, with EPS expected to grow by 15.57% each year in the next few years. This expected earnings growth, together with its current valuation, leads to an acceptable PEG ratio, implying the market may not be completely accounting for this better forecast.

Conclusion

Sanmina Corp makes a strong case for investors using a value strategy. The stock is valued at a notable discount to its industry based on several important valuation metrics, meeting the main need of searching for undervalued assets. This possible good deal is backed by a profitable business model with good returns on capital and a financially sound balance sheet marked by low debt. Although historical revenue growth has been slow, increasing earnings predictions suggest the company might be ready for a better performance period. For investors, this mix of a low price and good fundamentals creates the "margin of safety" that is key to value investing.

This review of Sanmina Corp was found using a particular value-focused screen. If you want to find other companies that meet similar standards, you can view more results from this Decent Value screen here.

Disclaimer: This article is for informational purposes only and does not constitute financial advice, a recommendation, or an offer or solicitation to buy or sell any securities. The opinions expressed are based on current market conditions and data believed to be reliable, but no assurance can be given that these opinions are accurate. Investors should conduct their own research and consult with a qualified financial advisor before making any investment decisions.