ZTO Express Cayman Inc (NYSE:ZTO): A Strong Value Pick in China's Logistics Sector

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

Value investing focuses on finding stocks priced below their true worth while having strong fundamentals. This approach, developed by Benjamin Graham and improved by Warren Buffett, highlights financial stability, earnings power, and steady growth, qualities that lower risk while providing room for gains. One method to spot these opportunities is by looking for stocks with good valuation measures, solid balance sheets, and reliable profit growth. ZTO Express (Cayman) Inc, a major name in China’s logistics industry, matches this description, making it an interesting option for investors focused on value.

What Makes ZTO Express a Strong Value Stock

1. Favorable Valuation Measures

ZTO’s valuation numbers indicate the stock is priced lower compared to both its competitors and broader market standards:

• Price/Earnings (P/E) Ratio of 11.10 – Much lower than the S&P 500 average (26.82) and the air freight & logistics sector average (17.48).
• Price/Forward Earnings of 9.42 – Points to expected profit growth at a fair price.
• Enterprise Value/EBITDA and Price/Free Cash Flow – Both ratios show ZTO is more affordable than most of its industry peers, supporting its undervalued status.

For value investors, these numbers suggest a safety buffer—a key idea in this strategy. A low P/E ratio relative to growth potential (PEG ratio) also implies the stock isn’t just inexpensive but fairly priced for its future earnings path.

2. High Profitability

ZTO’s profit metrics are strong, a crucial factor for value investors looking for lasting businesses:

• Operating Margin of 26.35% – Better than all industry rivals, showing effective cost control.
• Return on Invested Capital (ROIC) of 12.79% – Above the industry average (12.61%) and signals good use of capital.
• Reliable Earnings & Cash Flow – Profitable over the last five years with positive operating cash flow, lowering the chance of financial trouble.

Strong profitability means the company’s core business can support long-term value even if market conditions stay weak.

3. Sound Financial Position

A stable balance sheet reduces downside risk, another priority for value investing:

• Low Debt/Equity Ratio (0.15) – Far below industry norms, cutting risks tied to borrowing.
• Healthy Altman-Z Score (3.75) – Suggests minimal bankruptcy risk, important for cautious investors.
• Sustainable Dividend (3.50% Yield) – Not the highest, but above the S&P 500 average and backed by earnings.

Financial strength helps the company handle economic downturns while still investing in growth.

4. Consistent Growth Potential

While not a rapid-growth stock, ZTO delivers steady expansion:

• Revenue Growth (14.76% YoY) – Faster than many logistics competitors, driven by China’s e-commerce rise.
• EPS Growth (21.61% YoY) – Shows operational efficiency and scale benefits.
• Forward Revenue Growth (9.75% Expected) – Indicates ongoing demand for its logistics services.

For value investors, steady and predictable growth is often better than volatile high-growth trends, as it fits with long-term wealth building.

Final Thoughts: A Well-Rounded Value Case

ZTO Express offers a mix of undervaluation and solid fundamentals—a rare find in today’s market. Its low P/E, high profitability, and clean balance sheet align with Graham’s ideas of safety margins and true worth. While risks like China’s economic slowdown remain, the stock’s current price seems to reflect some of these concerns.

For investors searching for more undervalued picks, check out our Decent Value Stocks Screen for other options.

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