On July 25, 2023, WestRock Co (WRK, Financial) experienced a gain of 4.88%, with its stock price reaching $32.26. Despite a market cap of $8.3 billion and sales of $21.1 billion, the company reported a Loss Per Share of $-4.86. The GF Value, a unique measure of intrinsic worth, is estimated at $49.61, suggesting that the company's stock may be a potential value trap.
WestRock Co, the largest North American producer of solid bleached sulfate and the second-largest producer of containerboard, specializes in manufacturing corrugated and consumer packaging. This company, born from the merger of RockTenn and MeadWestvaco in 2015, is a key player in the production of shipping containers.
GF Value and Valuation
The GF Value of WestRock Co, determined based on historical trading multiples, an adjustment factor from GuruFocus, and future business performance estimates, suggests a potential value trap. If the share price significantly exceeds the GF Value Line, the stock may be overvalued and yield poor future returns. Conversely, if the share price is considerably below the GF Value, the stock could be undervalued, promising higher future returns. Given WestRock Co's current price per share, the stock appears to be a possible value trap.
WestRock Co's Altman Z-score of 1.04 indicates financial distress and a higher bankruptcy risk, suggesting caution for potential investors. A safer financial condition would be reflected by an Altman Z-score above 2.99. For more information on how the Z-score measures financial risk, please click here.
Financial Strength and Profitability
Investing in financially strong companies reduces the risk of permanent capital loss. WestRock Co's cash-to-debt ratio of 0.04, lower than 87.84% of companies in the Packaging & Containers industry, suggests poor financial strength. Over the past ten years, the company has been profitable eight times, with an operating margin of 7.55%, better than 63.74% of its industry peers. Its profitability is ranked at 6 out of 10 by GuruFocus.
Growth and ROIC vs WACC
WestRock Co's average annual revenue growth is 4.8%, lower than 60.29% of companies in its industry. Its 3-year average EBITDA growth is -1%, ranking worse than 64.74% of its industry counterparts. Comparing the company's return on invested capital (ROIC) to the weighted average cost of capital (WACC) can also indicate profitability. WestRock Co's ROIC of 6.57 and WACC of 6.77 suggest the company is not creating value for shareholders.
Conclusion
Based on the analysis, WestRock Co's stock appears to be a potential value trap. The company's financial condition is poor, and its profitability and growth rank lower than most companies in the Packaging & Containers industry. For more details on WestRock Co's financials, you can check out its 30-Year Financials here.
To discover high-quality companies that may deliver above-average returns, please visit GuruFocus High Quality Low Capex Screener.
