Ingersoll Rand Inc (IR, Financial) experienced a notable daily loss of 6.6%, yet it has achieved a 3.57% gain over the past three months. With an Earnings Per Share (EPS) of 2.01, investors are keen to determine if the stock is modestly overvalued as suggested by its current market dynamics. This analysis delves into the intrinsic value of Ingersoll Rand, leveraging the GF Value to ascertain whether the stock's current price reflects its true worth.
Company Overview
Ingersoll Rand was formed from the merger between Gardner Denver and the industrial segment of the original Ingersoll Rand. The company operates through two main business lines: Industrial Technologies and Services, and Precision and Science Technologies. Serving diverse end markets such as industrial, medical, and energy, Ingersoll Rand offers a wide array of products including compression, blower and vacuum, and fluid management systems. In 2023, the company generated approximately $6.9 billion in revenue. Currently, with a stock price of $86.72, Ingersoll Rand holds a market capitalization of $35 billion, but how does this compare to its GF Value?
Understanding GF Value
The GF Value is a proprietary measure calculated to reflect the true intrinsic value of a stock. It incorporates historical trading multiples, a GuruFocus adjustment factor based on past company performance, and future business performance estimates. For Ingersoll Rand, the GF Value is set at $72.13, suggesting that the stock is modestly overvalued at its current price. This valuation takes into account the company's historical data and projected future performance, indicating potential lower future returns due to the current overvaluation.
Financial Strength and Stability
Investing in companies with robust financial health is crucial to minimize the risk of capital loss. Ingersoll Rand's cash-to-debt ratio stands at 0.53, which, although lower than many of its peers, still supports a GuruFocus financial strength rating of 8 out of 10. This rating reflects a strong balance sheet that can safeguard investments against market volatility and economic downturns.
Profitability and Growth Prospects
Consistent profitability is a key indicator of a company's investment potential. Ingersoll Rand has maintained profitability over the past decade, with a notable operating margin of 18.48%, ranking it higher than 89.29% of its industry peers. The company's 3-year average annual revenue growth rate is 17.4%, reflecting strong market performance and the potential for value creation for shareholders.
Return on Invested Capital vs. Weighted Average Cost of Capital
An important metric for assessing a company's efficiency at turning capital into profits is the comparison between the Return on Invested Capital (ROIC) and the Weighted Average Cost of Capital (WACC). Currently, Ingersoll Rand's ROIC is 7.86, which is below its WACC of 12.23, suggesting that the company is not generating adequate returns relative to its capital costs.
Conclusion
While Ingersoll Rand (IR, Financial) shows strong financial health and profitability, its current market price above the GF Value suggests it is modestly overvalued, which might limit future investment returns. Investors interested in this stock should consider these factors and monitor potential market adjustments. For more detailed financial insights on Ingersoll Rand, visit the 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.
