Ingersoll Rand Inc (IR, Financial) has experienced a daily gain of 2.29%, and a 3-month gain of 13.87%. The company's Earnings Per Share (EPS) stands at 1.72. The question that arises from these metrics is whether the stock is fairly valued. This article provides a detailed valuation analysis of Ingersoll Rand, encouraging readers to delve into the financial intricacies of the company.
Company Overview
Ingersoll Rand was formed through the merger of Gardner Denver and Ingersoll Rand's industrial segment. The company's portfolio consists of two business lines: industrial technologies and services, and precision and science technologies. It serves a variety of end markets, including industrial, medical, and energy. Its diverse portfolio of products includes compression, blower and vacuum, and fluid management. Ingersoll Rand generated approximately $5.9 billion in revenue in 2022.
The current stock price of Ingersoll Rand is $70.01, while the GF Value, an estimation of fair value, is $67.7. With a market cap of $28.30 billion, Ingersoll Rand appears to be fairly valued.
Understanding GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It is calculated based on historical trading multiples, a GuruFocus adjustment factor based on past returns and growth, and future business performance estimates.
If the stock price is significantly above the GF Value Line, the stock is overvalued and its future return is likely to be poor. Conversely, if the stock price is significantly below the GF Value Line, its future return will likely be higher. Ingersoll Rand's stock appears to be fairly valued, indicating that the long-term return of its stock is likely to be close to the rate of its business growth.
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Financial Strength
Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Thus, it is important to carefully review the financial strength of a company before deciding whether to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company. Ingersoll Rand has a cash-to-debt ratio of 0.43, which is worse than 70.2% of 2792 companies in the Industrial Products industry. GuruFocus ranks the overall financial strength of Ingersoll Rand at 7 out of 10, which indicates that the financial strength of Ingersoll Rand is fair.
Profitability and Growth
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Ingersoll Rand has been profitable 5 years over the past 10 years. During the past 12 months, the company had revenues of $6.50 billion and Earnings Per Share (EPS) of $1.72. Its operating margin of 16.23% is better than 85.71% of 2800 companies in the Industrial Products industry. Overall, GuruFocus ranks Ingersoll Rand's profitability as fair.
Growth is probably the most important factor 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. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Ingersoll Rand is14.3%, which ranks better than 71.29% of 2672 companies in the Industrial Products industry. The 3-year average EBITDA growth rate is 23.6%, which ranks better than 73.1% of 2364 companies in the Industrial Products industry.
ROIC vs WACC
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average 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. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Ingersoll Rand's return on invested capital is 6.82, and its cost of capital is 11.57.
Conclusion
In summary, the stock of Ingersoll Rand (IR, Financial) gives every indication of being fairly valued. The company's financial condition is fair and its profitability is fair. Its growth ranks better than 73.1% of 2364 companies in the Industrial Products industry. To learn more about Ingersoll Rand stock, you can check out its 30-Year Financials here.
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