On September 14, 2023, Ecolab Inc (ECL, Financial) reported a daily loss of 2.43% and a 3-month loss of 1.18%. Despite these figures, the company's Earnings Per Share (EPS) stand at a healthy 4.11. This raises the question: Is Ecolab (ECL) modestly undervalued? Let's delve into a comprehensive valuation analysis to find out.
Company Introduction
Ecolab Inc (ECL, Financial) is a leading producer and marketer of cleaning and sanitation products for the hospitality, healthcare, and industrial markets. It holds a strong market share with a wide array of products and services, including dish and laundry washing systems, pest control, and infection control products. Ecolab's market cap stands at $50.10 billion, with sales reaching $14.80 billion. Despite a stock price of $175.86, the company's fair value (GF Value) is estimated at $221.27, suggesting that the stock may be modestly undervalued.
Understanding GF Value
The GF Value is a proprietary measure that estimates a stock's intrinsic value based on historical trading multiples, an internal adjustment factor based on past performance and growth, and future business performance estimates. If a stock's share price is significantly above the GF Value Line, it may be overvalued and have poor future returns. Conversely, if the stock's share price is significantly below the GF Value Line, it may be undervalued and have high future returns.
According to GuruFocus, Ecolab's stock appears to be modestly undervalued. This suggests that the long-term return of its stock is likely to be higher than its business growth.
Evaluating Financial Strength
Investing in companies with poor financial strength can result in a higher risk of permanent loss of capital. Therefore, it's crucial to carefully review a company's financial strength before deciding to buy its stock. Ecolab's cash-to-debt ratio stands at 0.06, ranking worse than 92.38% of companies in the Chemicals industry. Despite this, the overall financial strength of Ecolab is ranked 5 out of 10, indicating fair financial strength.
Assessing Profitability and Growth
Investing in profitable companies is generally less risky, especially if they have consistent profitability over the long term. Ecolab has been profitable 9 out of the past 10 years with an operating margin of 12.71%, ranking better than 75.83% of companies in the Chemicals industry. However, the company's growth ranks worse than 66.25% of companies in the Chemicals industry, with an average annual revenue growth of 4.9% and a 3-year average EBITDA growth of -1.7%.
ROIC vs WACC
Comparing a company's Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC) can help determine its profitability. If the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Ecolab's ROIC stands at 8.23, while its WACC is at 9.34.
Conclusion
In conclusion, Ecolab's stock appears to be modestly undervalued. While the company's financial condition is fair, its profitability is fair, and its growth ranks worse than 72.58% of companies in the Chemicals industry. For more information about Ecolab's stock, check out its 30-Year Financials here.
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