Embotelladora Andina SA (AKO.B, Financial) has seen a daily gain of 2.22% and a 3-month loss of -16.54%. With an Earnings Per Share (EPS) of 0.98, the question arises: is the stock significantly undervalued? This article aims to answer this question through an in-depth valuation analysis. Join us as we explore the intrinsic value of Embotelladora Andina SA (AKO.B).
Company Introduction
Embotelladora Andina SA is a Coca-Cola bottler in Latin America, producing a wide array of beverages including carbonated soft drinks, water, fruit juices, energy drinks, and sports drinks under various Coca-Cola brands. The company also sells non-Coca-Cola branded teas, juices, beers, and spirits. It operates in Chile, Brazil, Argentina, and Paraguay.
With a current stock price of $12.9 per share and a market cap of $2 billion, Embotelladora Andina SA (AKO.B, Financial) seems to be significantly undervalued when compared to its GF Value of $18.52. This discrepancy paves the way for a more profound exploration of the company's value.
Understanding the GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It is calculated based on historical trading multiples, a GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of business performance. The GF Value Line provides an overview of the fair value at which the stock should ideally be traded.
If the stock price is significantly above the GF Value Line, it indicates overvaluation and a likely poor future return. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher. In the case of Embotelladora Andina SA, the stock appears to be significantly undervalued, suggesting that the long-term return of its stock is likely to be much higher than its business growth.
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Assessing Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it is crucial to carefully review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can provide a good initial perspective on the company's financial strength.
Embotelladora Andina SA has a cash-to-debt ratio of 0.37, which ranks worse than 66.35% of 104 companies in the Beverages - Non-Alcoholic industry. Based on this, GuruFocus ranks Embotelladora Andina SA's financial strength as 6 out of 10, suggesting a fair balance sheet.
Profitability and Growth
Investing in profitable companies, especially those that have demonstrated consistent profitability over the long term, poses less risk. A company with high profit margins is also typically a safer investment than one with low profit margins. Embotelladora Andina SA has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $3.20 billion and Earnings Per Share (EPS) of $0.98. Its operating margin is 12.5%, which ranks better than 67.92% of 106 companies in the Beverages - Non-Alcoholic industry. Overall, GuruFocus ranks the profitability of Embotelladora Andina SA at 8 out of 10, which indicates strong profitability.
Growth is probably the most important 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 Embotelladora Andina SA is14.3%, which ranks better than 81.05% of 95 companies in the Beverages - Non-Alcoholic industry. The 3-year average EBITDA growth rate is 1.2%, which ranks worse than 62.77% of 94 companies in the Beverages - Non-Alcoholic industry.
ROIC vs WACC
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Embotelladora Andina SA's return on invested capital is 8.21, and its cost of capital is 5.62.
Conclusion
Overall, Embotelladora Andina SA (AKO.B, Financial) stock appears to be significantly undervalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks worse than 62.77% of 94 companies in the Beverages - Non-Alcoholic industry. To learn more about Embotelladora Andina SA stock, you can check out its 30-Year Financials here.
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