The stock of Unilever PLC (NYSE:UL, 30-year Financials) is believed to be fairly valued, 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 $60.59 per share and the market cap of $159.1 billion, Unilever PLC stock shows every sign of being fairly valued. GF Value for Unilever PLC is shown in the chart below.
Because Unilever PLC is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which averaged 1.2% over the past three years and is estimated to grow 0.44% annually over the next three to five years.
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Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company’s financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. Unilever PLC has a cash-to-debt ratio of 0.24, which which ranks worse than 66% of the companies in the industry of Consumer Packaged Goods. The overall financial strength of Unilever PLC is 4 out of 10, which indicates that the financial strength of Unilever PLC is poor. This is the debt and cash of Unilever PLC over the past years:
It poses less risk to invest in profitable companies, especially those that have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. Unilever PLC has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $59.4 billion and earnings of $2.466 a share. Its operating margin is 18.47%, which ranks better than 89% of the companies in the industry of Consumer Packaged Goods. Overall, GuruFocus ranks the profitability of Unilever PLC at 8 out of 10, which indicates strong profitability. This is the revenue and net income of Unilever PLC 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. Unilever PLC’s 3-year average revenue growth rate is in the middle range of the companies in the industry of Consumer Packaged Goods. Unilever PLC’s 3-year average EBITDA growth rate is 4.4%, which ranks in the middle range of the companies in the industry of Consumer Packaged Goods.
Another way to look at the profitability of a company is to compare its return on invested capital and the weighted cost of capital. 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. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, Unilever PLC’s return on invested capital is 12.34, and its cost of capital is 2.20. The historical ROIC vs WACC comparison of Unilever PLC is shown below:
To conclude, The stock of Unilever PLC (NYSE:UL, 30-year Financials) is estimated to be fairly valued. The company’s financial condition is poor and its profitability is strong. Its growth ranks in the middle range of the companies in the industry of Consumer Packaged Goods. To learn more about Unilever PLC stock, you can check out its 30-year Financials here.
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