The stock of Nestle SA (OTCPK:NSRGY, 30-year Financials) is estimated to be fairly valued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $112.45 per share and the market cap of $316.7 billion, Nestle SA stock shows every sign of being fairly valued. GF Value for Nestle SA is shown in the chart below.
Because Nestle SA is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which averaged 0.8% over the past five years.
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Since investing in companies with low financial strength could result in permanent capital loss, investors must carefully review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. Nestle SA has a cash-to-debt ratio of 0.22, which ranks worse than 68% of the companies in the industry of Consumer Packaged Goods. Based on this, GuruFocus ranks Nestle SA's financial strength as 5 out of 10, suggesting fair balance sheet. This is the debt and cash of Nestle SA over the past years:
It is less risky to invest in profitable companies, especially those with consistent profitability over long term. A company with high profit margins is usually a safer investment than those with low profit margins. Nestle SA has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $92.2 billion and earnings of $4.676 a share. Its operating margin is 17.05%, which ranks better than 88% of the companies in the industry of Consumer Packaged Goods. Overall, the profitability of Nestle SA is ranked 7 out of 10, which indicates fair profitability. This is the revenue and net income of Nestle SA over the past years:
Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term stock performance of a company. A faster growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Nestle SA is 0.8%, which ranks in the middle range of the companies in the industry of Consumer Packaged Goods. The 3-year average EBITDA growth rate is 11.9%, which ranks better than 68% of the companies in the industry of Consumer Packaged Goods.
Another way to look at the profitability of a company is to compare its return on invested capital and the weighted 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. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, Nestle SA's return on invested capital is 9.95, and its cost of capital is 3.10. The historical ROIC vs WACC comparison of Nestle SA is shown below:
In short, the stock of Nestle SA (OTCPK:NSRGY, 30-year Financials) is estimated to be fairly valued. The company's financial condition is fair and its profitability is fair. Its growth ranks better than 68% of the companies in the industry of Consumer Packaged Goods. To learn more about Nestle SA stock, you can check out its 30-year Financials here.
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