Ecovyst Inc (ECVT, Financial) recently saw a daily gain of 4.29%, despite a 3-month loss of 9.43%. With an Earnings Per Share (EPS) (EPS) of 0.54, the question arises: Is the stock modestly undervalued? This article aims to answer this question by conducting a detailed valuation analysis of Ecovyst. So, let's delve into the financials of this specialty materials and chemicals provider.
A Brief Overview of Ecovyst Inc (ECVT, Financial)
Ecovyst, a provider of catalysts, specialty materials, chemicals, and services, aims to enable environmental improvements, enhance consumer products, and increase personal safety. The company manufactures specialty inorganic performance chemicals, specialty catalysts, and specialty glass materials. With operations in the United States and other countries, Ecovyst's operating segments include Ecoservices and Catalyst Technologies. At a stock price of $10.22, Ecovyst has a market cap of $1.20 billion, indicating that it may be modestly undervalued.
Understanding the GF Value of Ecovyst (ECVT, Financial)
The GF Value is a proprietary measure that reflects the current intrinsic value of a stock. The GF Value Line on our summary page provides an overview of the fair value at which the stock should ideally be traded. It is calculated based on historical multiples, a GuruFocus adjustment factor based on the company's past performance and growth, and future business performance estimates.
According to GuruFocus, Ecovyst's stock is estimated to be modestly undervalued. This estimation is 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. If the stock's share price is significantly above the GF Value Line, the stock may be overvalued and have poor future returns. Conversely, if the stock's share price is significantly below the GF Value Line, the stock may be undervalued and have high future returns.
Given that Ecovyst is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth.
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Assessing Ecovyst's Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, investors must carefully review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. Ecovyst has a cash-to-debt ratio of 0.03, which ranks worse than 95.73% of 1475 companies in the Chemicals industry. Based on this, GuruFocus ranks Ecovyst's financial strength as 4 out of 10, suggesting a poor balance sheet.
Ecovyst's Profitability and Growth
Investing in profitable companies, especially those that have demonstrated consistent profitability over the long term, poses less risk. A company with high profit margins is also typically a safer investment than one with low profit margins. Ecovyst has been profitable 5 over the past 10 years. Over the past twelve months, the company had a revenue of $760.30 million and Earnings Per Share (EPS) of $0.54. Its operating margin is 15.89%, which ranks better than 83.63% of 1478 companies in the Chemicals industry. Overall, GuruFocus ranks the profitability of Ecovyst at 5 out of 10, which indicates 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 Ecovyst is15.6%, which ranks better than 68.05% of 1424 companies in the Chemicals industry. The 3-year average EBITDA growth is 4.6%, which ranks worse than 61.02% of 1316 companies in the Chemicals industry.
Ecovyst's ROIC vs WACC
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, Ecovyst's return on invested capital is 5.4, and its cost of capital is 6.83.
Conclusion
In conclusion, the stock of Ecovyst is estimated to be modestly undervalued. The company's financial condition is poor, and its profitability is fair. Its growth ranks worse than 61.02% of 1316 companies in the Chemicals industry. To learn more about Ecovyst stock, you can check out its 30-Year Financials here.
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