NewMarket Corp (NEU, Financial) recently reported a daily gain of 10.04% and a 3-month gain of 10.19%. With an Earnings Per Share (EPS) (EPS) of 36.03, the question arises: is the stock fairly valued? This article aims to provide a comprehensive valuation analysis of NewMarket (NEU), offering insights into its intrinsic value. Read on to delve deeper into the company's financials and market position.
Company Overview
NewMarket Corp is a holding company that primarily operates in the petroleum additives industry. The company's products, used in lubricating oils and fuels, enhance the performance of machinery, vehicles, and other equipment. NewMarket's revenue is primarily generated from the United States, making it a significant player in the region.
Currently, NewMarket (NEU, Financial) is trading at $482.3 per share, with a market cap of $4.60 billion. The company's GF Value, an estimation of its fair value, stands at $459.14, indicating that the stock appears to be fairly valued.
Understanding GF Value
The GF Value is a proprietary calculation representing the intrinsic value of a stock. It is computed based on historical trading multiples, a GuruFocus adjustment factor considering the company's past performance and growth, and future business performance estimates.
The stock of NewMarket (NEU, Financial) appears to be fairly valued according to the GF Value estimation. If the stock's price is significantly above the GF Value Line, it may be overvalued, potentially leading to poor future returns. Conversely, if the stock's price is significantly below the GF Value Line, it may be undervalued, suggesting high future returns.
Given that NewMarket is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth.
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Financial Strength
Companies with poor financial strength pose a high risk of permanent capital loss to investors. To avoid this, it's crucial to review a company's financial strength before purchasing its shares. Key indicators of financial strength include the cash-to-debt ratio and interest coverage. NewMarket has a cash-to-debt ratio of 0.13, ranking worse than 86.07% of companies in the Chemicals industry. The overall financial strength of NewMarket is 6 out of 10, indicating fair financial strength.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is generally less risky. NewMarket has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $2.80 billion and Earnings Per Share (EPS) of $36.03. Its operating margin is 15.82%, ranking better than 83.19% of companies in the Chemicals industry. Overall, the profitability of NewMarket is ranked 9 out of 10, indicating strong profitability.
Growth is a crucial factor in a company's valuation. The 3-year average annual revenue growth rate of NewMarket is 12%, ranking better than 57.86% of companies in the Chemicals industry. The 3-year average EBITDA growth rate is 4.9%, ranking worse than 60.21% of companies in the Chemicals industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted cost of capital (WACC) is another way to evaluate its profitability. 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 ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, NewMarket's ROIC was 18.38, while its WACC came in at 6.48.
Conclusion
Overall, NewMarket (NEU, Financial) stock appears to be fairly valued. The company's financial condition is fair, and its profitability is strong. Its growth ranks worse than 60.21% of 1342 companies in the Chemicals industry. To learn more about NewMarket stock, check out its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
