With a daily gain of 5.4%, a three-month loss of 8.25%, and an Earnings Per Share (EPS) (EPS) of 4.11, Ecolab Inc (ECL, Financial) presents an interesting case for value investors. The question we aim to answer is whether Ecolab (ECL) is modestly undervalued or not. This article provides a detailed valuation analysis of Ecolab, exploring its financial strength, profitability, and growth. We invite you to delve into this comprehensive analysis of Ecolab's intrinsic value.
Introduction to Ecolab Inc (ECL, Financial)
Ecolab produces and markets cleaning and sanitation products for the hospitality, healthcare, and industrial markets. The company is a global market leader in this category, offering a wide array of products and services, including dish and laundry washing systems, pest control, and infection control products. Ecolab has a strong hold on the U.S. market and is looking to increase its profitability abroad. It also serves customers in water, manufacturing, and life sciences end markets, selling customized solutions. With a current stock price of $167.74, the question arises whether this price reflects the company's fair value, as estimated by the GF Value.
Understanding the GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It is computed based on historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line on our summary page gives an overview of the fair value at which the stock should ideally be traded. If the stock price 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.
According to GuruFocus' valuation method, Ecolab (ECL, Financial) appears to be modestly undervalued. The GF Value estimates the stock's fair value based on three key factors: historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. At its current price of $167.74 per share, Ecolab stock gives every indication of being modestly undervalued. Because Ecolab is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth.
Evaluating Ecolab's Financial Strength
Checking the financial strength of a company is crucial before investing in its stock. Companies with poor financial strength pose a higher risk of permanent loss. Evaluating the cash-to-debt ratio and interest coverage can provide a clear understanding of a company's financial strength. Ecolab has a cash-to-debt ratio of 0.06, which is worse than 92.3% of 1506 companies in the Chemicals industry. The overall financial strength of Ecolab is 5 out of 10, indicating that the financial strength of Ecolab is fair.
Assessing Ecolab's Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is less risky. A company with high profit margins is generally a safer investment than those with low profit margins. Ecolab has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of $14.80 billion and Earnings Per Share (EPS) of $4.11. Its operating margin is 12.71%, which ranks better than 75.41% of 1521 companies in the Chemicals industry. Overall, the profitability of Ecolab is ranked 7 out of 10, indicating fair profitability.
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Ecolab is 4.9%, which ranks worse than 66.57% of 1448 companies in the Chemicals industry. The 3-year average EBITDA growth is -1.7%, which ranks worse than 72.41% of 1341 companies in the Chemicals industry.
Comparing Ecolab's ROIC and WACC
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, Ecolab's ROIC is 8.23 while its WACC came in at 9.82.
Conclusion
In summary, the stock of Ecolab (ECL, Financial) gives every indication of being modestly undervalued. The company's financial condition is fair and its profitability is fair. Its growth ranks worse than 72.41% of 1341 companies in the Chemicals industry. To learn more about Ecolab 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.
