Zebra Technologies Corp (NASDAQ:ZBRA) Presents a Compelling Value Investment Case

For investors looking for chances where a company's market price may not match its basic business condition, a methodical value investing method can be a practical structure. This method focuses on finding stocks that seem priced low according to basic measures, such as earnings, cash flow, and financial condition, while also displaying good operational results. The aim is to discover good companies selling for less than their calculated worth, providing a possible "margin of safety." One such company appearing from a basic filter for reasonable value is ZEBRA TECHNOLOGIES CORP-CL A (NASDAQ:ZBRA).

Valuation: An Appealing Entry Point

The central idea of value investing is buying a dollar's worth of assets for clearly less than a dollar. Zebra Technologies' valuation measures indicate it might be selling at such a lower price compared to both its field and the wider market. As stated in the fundamental analysis report, the stock's valuation rating is 7 out of 10, showing it is priced well.

• Price-to-Earnings (P/E): With a P/E ratio of 17.10, ZBRA is valued lower than 84% of similar companies in the Electronic Equipment, Instruments & Components field, which has an average P/E above 40. It also sells below the current S&P 500 average of 26.28.
• Forward-Looking Metrics: The valuation view improves when considering the future. The Price/Forward Earnings ratio of 14.80 is less than 84.8% of field rivals and is also under the S&P 500 forward average.
• Cash Flow & EBITDA: The stock's Price/Free Cash Flow and Enterprise Value/EBITDA ratios are also noted as being lower than most of its field peers, giving more support for the case of a low price.

For a value investor, these measures are the beginning. They imply the market may be setting a low price on a company whose financial results, as we will see, do not justify such a lower value.

Financial Health: A Stable Base

A low-priced stock is only a sound investment if the company is financially stable enough to withstand economic changes and carry out its plan. Zebra's financial health rating is a neutral 5, showing a varied but generally steady situation. This is important for the value method, as a good balance sheet gives the strength required while waiting for the market to see the company's value.

• Solvency is Strong: The company displays positive indicators of long-term stability. Its Altman-Z score of 3.90 shows little near-term risk of bankruptcy, and its debt-to-free-cash-flow ratio of 2.74 is viewed as good, meaning it could in theory pay off all debt in under three years with its present cash flow.
• Liquidity Presents a Minor Concern: The report states that Zebra's Current and Quick ratios are in the lower half of its field. While still at levels that should let it meet short-term obligations (1.61 and 1.19, in order), this is an area for investors to watch, as it points out a relative softness compared to peers.

Profitability: The Driver of Value

A company must be profitable to finally support a higher valuation. Zebra Technologies does well here, getting a high profitability rating of 7. Good and steady profitability is a key check for value investors, as it confirms the business model is effective and that the low valuation is not a sign of weak operations.

• Consistent Earnings: The company has been profitable each year for the past five years and has produced positive operating cash flow in four of those years.
• Better Margins and Returns: Zebra does better than a large majority of its field in important efficiency measures:
  • Profit Margin: 9.74%, better than 79.2% of peers.
  • Operating Margin: 15.34%, better than 88.8% of peers.
  • Return on Invested Capital (ROIC): 10.71%, better than 85.6% of peers, and a three-year average that is higher than the field.

This good profitability picture suggests the company is effectively turning revenue into earnings, a basic force behind long-term shareholder value.

Growth: The Force for Re-rating

While pure value stocks sometimes lack growth, Zebra presents an appealing mix. Its growth rating of 6 shows a steady, quickening path. For value investors, growth works as a possible force that can narrow the difference between the present market price and calculated worth sooner.

• Good Recent Performance: Over the past year, the company reported strong growth in both Earnings Per Share (+38.24%) and Revenue (+12.87%).
• Positive Future Outlook: Analysts think this speed will continue, with EPS projected to grow nearly 14% each year in the coming years. Revenue growth is also expected to quicken compared to its recent past average.

This forward growth, when joined with its present valuation multiples, leads to an appealing PEG ratio, which adjusts the P/E for growth. This builds the case that the stock is not just low-priced, but low-priced relative to its expected earnings increase.

Conclusion

Zebra Technologies presents an example of what value-focused filters try to find: a basically stable company selling at a lower price. Its good profitability and acceptable growth outlook differ from valuation multiples that are below field and market averages. While investors should note the company's average liquidity scores, its overall solvency and cash flow creation seem stable. The match of a low price with acceptable basics forms the "margin of safety" that value investors like Benjamin Graham and Warren Buffett have long supported.

For investors wanting to examine other stocks that meet similar conditions of good valuation along with acceptable profitability, health, and growth, more study can be done using the Decent Value Stocks screen on ChartMill.

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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 information presented is based on data provided and should not be the sole basis for any investment decision. Investing involves risk, including the potential loss of principal. Always conduct your own due diligence and consider consulting with a qualified financial advisor before making any investment decisions.