ZTO EXPRESS CAYMAN INC-ADR (NYSE:ZTO): A Strong Value Pick in China's Logistics Sector

ZTO Express (Cayman) Inc. (NYSE:ZTO): A Possible Undervalued Choice in Logistics

Value investing focuses on finding stocks priced below their true worth while having solid fundamentals. This approach, based on Benjamin Graham’s ideas, looks for firms with good profitability, financial stability, and growth prospects, yet trading at a lower price. ZTO Express, a major name in China’s logistics industry, appears to match this criteria, performing well in valuation, profitability, and financial health measures.

What Makes ZTO Express a Strong Value Option

1. Favorable Valuation Measures

ZTO’s valuation numbers indicate it may be priced lower than its industry and the wider market:

• Price/Earnings (P/E) Ratio of 11.15 – Below the S&P 500 average (28.05) and more affordable than 90.91% of its logistics competitors.
• Forward P/E of 9.45 – Suggests continued earnings growth at a reasonable price.
• Enterprise Value/EBITDA and Price/Free Cash Flow – Both ratios rank ZTO among the most affordable in its sector.

For value investors, these figures point to a safety buffer—a key part of Graham’s strategy—where the stock’s price doesn’t fully capture its earnings or cash flow potential.

2. High Profitability

Profitability is vital in value investing, as it shows a company can maintain operations and benefit shareholders. ZTO performs well here:

• Operating Margin of 26.35% – One of the best in its industry, ahead of all peers.
• Return on Invested Capital (ROIC) of 12.79% – Higher than its cost of capital, showing efficient resource use.
• Steady Earnings & Cash Flow – Profitable over the last five years with positive operating cash flow, lowering financial risk.

These numbers fit with value investing’s emphasis on lasting competitive strengths—ZTO’s efficiency in parcel sorting and delivery supports its strong margins.

3. Stable Financial Position

A company’s financial strength determines its ability to handle challenges. ZTO shows resilience:

• Low Debt/Equity Ratio (0.15) – Less debt reliance compared to 63.64% of industry peers.
• Healthy Altman-Z Score (3.76) – Indicates low risk of financial distress.
• Strong Free Cash Flow Coverage – Debt could be paid off in 1.41 years using current FCF, a top-tier figure.

Financial stability is crucial for value investors, as it lowers the chance of lasting losses—a major concern when buying undervalued stocks.

4. Steady and Reliable Growth

While not a rapid-growth stock, ZTO delivers consistent progress:

• Revenue Growth (14.76% YoY) – Faster than many logistics rivals.
• EPS Growth (21.61% YoY) – Backed by operational efficiency.
• Forward Revenue Growth (9.68% projected annually) – Sustainable given China’s e-commerce growth.

Value investors often prefer "quality at a fair price" over extreme growth, and ZTO’s growth pattern fits this balance.

Possible Risks and Factors to Watch

• Slowing EPS Growth – Future EPS growth (5.84%) trails past results, requiring attention.
• Industry Competition – China’s logistics market is crowded, though ZTO’s margins indicate a strong position.

Final Thoughts

ZTO Express offers a strong case for value-focused investors, blending low valuation multiples with high profitability, a solid balance sheet, and steady growth. Its fundamentals match the ideas of safety and long-term quality highlighted by Graham and Buffett.

For investors looking for similar options, more undervalued stocks can be found using this Decent Value Stocks screener.

Disclaimer: This analysis is not investment advice. Always do your own research or consult a financial advisor before making investment decisions.