Materion Corp (MTRN, Financial) recently recorded a daily gain of 8.82%, despite a three-month loss of 9.55%. This performance, combined with an Earnings Per Share (EPS) (EPS) of 4.72, prompts an exploration into whether the stock is modestly overvalued. This article provides an in-depth analysis of Materion's valuation, financial strength, and growth prospects, offering valuable insights to value investors.
A Snapshot of Materion Corp
Materion Corp is a US-based producer of engineered materials used in electrical, electronic, thermal, and structural applications. The company operates in four segments: Performance Materials, Electronic Materials, Precision Optics, and Others, with the majority of its revenue derived from Electronic Materials. The current stock price is $105.53, with a market cap of $2.20 billion. When compared to the GF Value of $93.73, it appears that Materion is modestly overvalued.
Understanding the GF Value
The GF Value is a proprietary measure of a stock's intrinsic value, calculated based on historical trading multiples, a GuruFocus adjustment factor based on past returns and growth, and future business performance estimates. The GF Value Line represents the fair value at which the stock should ideally trade. Stocks priced significantly above the GF Value Line are likely overvalued and may offer poor future returns. Conversely, those priced significantly below may be undervalued and could offer higher future returns.
According to this valuation method, Materion appears to be modestly overvalued, with a fair value estimated at $93.73. This suggests that the long-term return of its stock is likely to be lower than its business growth.
Financial Strength Analysis
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's crucial to review a company's financial strength before deciding to buy shares. Materion has a cash-to-debt ratio of 0.03, ranking worse than 95.99% of companies in the Metals & Mining industry. GuruFocus ranks Materion's financial strength as 6 out of 10, suggesting a fair balance sheet.
Profitability and Growth
Companies that have been consistently profitable over the long term offer less risk for investors. Materion has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $1.70 billion and an EPS of $4.72. Its operating margin is 8.4%, which ranks better than 68.62% of companies in the Metals & Mining industry. Overall, the profitability of Materion is ranked 7 out of 10, indicating fair profitability.
Growth is a crucial factor in a company's valuation. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. Materion's 3-year average annual revenue growth rate is 13.8%, ranking better than 54.96% of companies in the Metals & Mining industry. The 3-year average EBITDA growth rate is 17.9%, ranking better than 60.02% of companies in the industry.
ROIC vs 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. Ideally, the ROIC should be higher than the WACC. For the past 12 months, Materion's ROIC is 7.82, and its WACC is 7.83.
Conclusion
In conclusion, Materion's stock appears to be modestly overvalued. The company's financial condition is fair, and its profitability is fair. Its growth ranks better than 60.02% of companies in the Metals & Mining industry. To learn more about Materion stock, you can 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.
