Despite a daily gain of 1.27%, FMC Corp (FMC, Financial) has experienced a significant 3-month loss of 37.54%. With an Earnings Per Share (EPS) (EPS) of 4.91, the question arises: is the stock significantly undervalued? This comprehensive analysis aims to answer this question by delving into FMC's valuation and financial performance. We invite you to join us on this insightful journey.
Company Overview
As a pure-play crop chemical company, FMC (FMC, Financial) has strategically diversified its sales to establish a balanced crop chemical portfolio across various geographies and crop exposures. The company has risen through the ranks to become one of the five largest patented crop chemical companies, thanks to its strategic acquisitions. FMC continues to focus on developing new products, especially biologicals, through its robust research and development pipeline.
Understanding the GF Value
The GF Value is a proprietary valuation method that provides an estimate of a stock's intrinsic value. The GF Value Line on our summary page represents the stock's ideal trading value, calculated based on three factors:
- Historical multiples that the stock has traded at.
- A GuruFocus adjustment factor based on the company's past performance and growth.
- Future estimates of the business performance.
According to our GF Value, FMC's current price of $66.08 per share suggests that the stock is significantly undervalued. This valuation implies a higher likelihood of above-average long-term returns for FMC's stock, outperforming its business growth.
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Financial Strength
Investing in companies with poor financial strength can pose a high risk of permanent capital loss. Therefore, it's crucial to assess a company's financial strength before purchasing shares. Two critical indicators are the cash-to-debt ratio and interest coverage. FMC's cash-to-debt ratio of 0.2 ranks below 73.77% of 244 companies in the Agriculture industry, indicating fair financial strength.
Profitability and Growth
Consistent profitability over the long term reduces investment risk. Higher profit margins usually suggest a better investment compared to a company with lower profit margins. FMC has been profitable 10 times over the past 10 years and its operating margin of 19.87% ranks better than 86.31% of 241 companies in the Agriculture industry, indicating strong profitability.
Growth is a critical factor in a company's valuation. A faster-growing company creates more value for shareholders, especially if the growth is profitable. However, FMC's 3-year average annual revenue growth of 9.5% ranks below 65.49% of 226 companies in the Agriculture industry. Furthermore, its 3-year average EBITDA growth rate is 12.1%, which is lower than 59.45% of 217 companies in the Agriculture industry.
ROIC vs WACC
Comparing a company's Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC) can provide insights into its profitability. If the ROIC exceeds the WACC, the company is likely creating value for its shareholders. FMC's ROIC of 11.46% during the past 12 months exceeds its WACC of 7.17%.
Conclusion
In conclusion, FMC Corp (FMC, Financial) appears to be significantly undervalued. The company's financial condition is fair, and its profitability is strong. However, its growth ranks lower than 59.45% of 217 companies in the Agriculture industry. For more in-depth information about FMC stock, check out its 30-Year Financials here.
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