The stock of Eni SpA (OTCPK:EIPAF, 30-year Financials) is believed to be modestly overvalued, 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 $12.55 per share and the market cap of $43 billion, Eni SpA stock is estimated to be modestly overvalued. GF Value for Eni SpA is shown in the chart below.
Because Eni SpA is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth.
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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. Eni SpA has a cash-to-debt ratio of 0.46, which ranks in the middle range of the companies in Oil & Gas industry. Based on this, GuruFocus ranks Eni SpA’s financial strength as 4 out of 10, suggesting poor balance sheet. This is the debt and cash of Eni SpA over the past years:
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Eni SpA has been profitable 7 over the past 10 years. Over the past twelve months, the company had a revenue of $54 billion and loss of $1.532 a share. Its operating margin is 6.70%, which ranks better than 66% of the companies in Oil & Gas industry. Overall, the profitability of Eni SpA is ranked 5 out of 10, which indicates fair profitability. This is the revenue and net income of Eni SpA over the past years:
Growth is probably one of the most important factors in the valuation of a company. GuruFocus’ research has found that growth is closely correlated with the long-term performance of a company’s stock. If a company’s business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. Eni SpA’s 3-year average revenue growth rate is worse than 68% of the companies in Oil & Gas industry. Eni SpA’s 3-year average EBITDA growth rate is -32.2%, which ranks worse than 82% of the companies in Oil & Gas industry.
One can also evaluate a company’s profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). 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. If the return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, Eni SpA’s ROIC is 8.75 while its WACC came in at 9.64. The historical ROIC vs WACC comparison of Eni SpA is shown below:
To conclude, Eni SpA (OTCPK:EIPAF, 30-year Financials) stock is believed to be modestly overvalued. The company's financial condition is poor and its profitability is fair. Its growth ranks worse than 82% of the companies in Oil & Gas industry. To learn more about Eni SpA stock, you can check out its 30-year Financials here.
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