On July 25, 2023, Dow Inc (DOW, Financial) saw a gain of 4.22%, pushing its stock price to $54.77. With a market cap of $38.7 billion and an Earnings Per Share (EPS) of $4, this global chemicals producer has a GF Value of $61.62, indicating that it may be modestly undervalued. But what does this mean for potential investors?
Dow, a diversified global chemicals producer, was formed in 2019 following the DowDuPont merger and subsequent separations. As a leading producer of chemicals like polyethylene, ethylene oxide, and silicone rubber, Dow's products find applications in various consumer and industrial end markets.
Is Dow (DOW, Financial) Undervalued or Overvalued?
The GF Value of Dow, calculated based on historical trading multiples, an adjustment factor from GuruFocus based on past performance and growth, and estimates of future business performance, suggests that Dow's stock is modestly undervalued. The GF Value Line, which represents the fair value at which the stock should ideally be traded, indicates that Dow's current price of $54.77 per share may be below its intrinsic worth.
As Dow appears to be relatively undervalued, the long-term return of its stock is likely to be higher than its business growth.
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Assessing Dow's Financial Strength
Investing in companies with poor financial strength can lead to higher risk of permanent loss. Dow's cash-to-debt ratio of 0.2 is lower than 79.37% of companies in the Chemicals industry, indicating poor financial strength. Understanding a company's financial strength through its cash-to-debt ratio and interest coverage is crucial before investing.
Profitability of Dow
Investing in profitable companies, especially those demonstrating consistent profitability over the long term, poses less risk. Dow, with its operating margin of 7.75% and an Earnings Per Share (EPS) of $4, ranks better than 53.56% of companies in the Chemicals industry in terms of profitability.
Growth Prospects of Dow
Growth is a crucial factor in a company's valuation. Dow's 3-year average annual revenue growth of 10.7% and EBITDA growth rate of 54.8% rank better than 55.01% and 92.1% of companies in the Chemicals industry, respectively, indicating promising growth prospects.
ROIC vs WACC
Comparing Dow's return on invested capital (ROIC) to its weighted cost of capital (WACC) can provide insights into the company's profitability. Over the past 12 months, Dow’s ROIC was 6.82, while its WACC came in at 7.67.
Conclusion
Overall, Dow (DOW, Financial) stock appears to be modestly undervalued. The company's financial condition and profitability are fair, and its growth ranks better than 92.1% of companies in the Chemicals industry. To learn more about Dow stock, check out its 30-Year Financials here.
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