Avery Dennison Corp (AVY, Financial) recently reported a daily gain of 2.54% and a 3-month gain of 8.09%. Its Earnings Per Share (EPS) (EPS) stands at 6.94. These figures raise the question: Is the stock fairly valued? This article presents an in-depth analysis of Avery Dennison's valuation, financial health, and future prospects. Read on to gain valuable insights into this stock.
Company Overview
Avery Dennison is a leading manufacturer of pressure-sensitive materials, merchandise tags, and labels. The company also operates a specialty converting business that produces radio-frequency identification inlays and labels. With a significant portion of its revenue generated from international operations, Avery Dennison has a strong global presence.
The company's current stock price is $181.1, and its GF Value, an estimation of the stock's fair value, is $185.01. With a market cap of $14.60 billion, the company's value appears to align closely with the GF Value.
Understanding GF Value
The GF Value is a proprietary measure of a stock's intrinsic value. It's derived from historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line on our summary page provides an overview of the stock's ideal fair trading value.
According to our valuation method, Avery Dennison (AVY, Financial) is estimated to be fairly valued. The GF Value estimates the stock's fair value based on historical multiples, an internal adjustment based on past business growth, and analyst estimates of future business performance. If the stock's share price is significantly above the GF Value Line, the stock may be overvalued and have poor future returns. Conversely, if the stock's share price is significantly below the GF Value Line, the stock may be undervalued and have high future returns.
Because Avery Dennison is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth.
Assessing Financial Strength
It's crucial to assess the financial strength of a company before investing in its stock. Investing in companies with poor financial strength can lead to higher risk of permanent loss. The cash-to-debt ratio and interest coverage are great indicators of a company's financial strength. Avery Dennison has a cash-to-debt ratio of 0.06, which is lower than 83.99% of 356 companies in the Packaging & Containers industry. This indicates that the financial strength of Avery Dennison is fair.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is generally less risky. Avery Dennison has been profitable 10 years over the past decade. Over the past twelve months, the company had a revenue of $8.50 billion and an EPS of $6.94. Its operating margin is 10.8%, which ranks better than 81.42% of 366 companies in the Packaging & Containers industry. This indicates strong profitability.
Growth is a crucial factor in the valuation of a company. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Avery Dennison is 9.8%, which ranks better than 62.22% of 352 companies in the Packaging & Containers industry. The 3-year average EBITDA growth rate is 41.2%, which ranks better than 89.49% of 333 companies in the same industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted cost of capital (WACC) is another way to evaluate its profitability. The ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. The WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Avery Dennison's ROIC was 10.77, while its WACC came in at 8.34.
Conclusion
Overall, Avery Dennison Corp (AVY, Financial) stock is estimated to be fairly valued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 89.49% of 333 companies in the Packaging & Containers industry. To learn more about Avery Dennison stock, you can check out its 30-Year Financials here.
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