Rockwell Automation Inc (ROK, Financial) experienced a daily gain of 1.7%, despite a 3-month loss of 7.95%. With an Earnings Per Share (EPS) (EPS) of 12.26, the question arises: Is the stock modestly undervalued? This article aims to answer this question by conducting a deep dive into the valuation analysis of Rockwell Automation. Read on to discover the intrinsic value of ROK based on its financial metrics and market performance.
Company Overview
Rockwell Automation is a leading automation competitor, succeeding Rockwell International after it spun off its former Rockwell Collins avionics segment in 2001. The company operates through three segments: intelligent devices, software and control, and lifecycle services. With a current stock price of $290.06 and a GF Value of $336.84, Rockwell Automation (ROK, Financial) appears to be modestly undervalued. This initial comparison sets the stage for a more comprehensive analysis of the company's value.
Understanding GF Value
The GF Value is an innovative measure of a stock's intrinsic value, based on historical trading multiples, an internal adjustment factor from GuruFocus based on past returns and growth, and future business performance estimates. The GF Value Line provides an ideal fair trading value for the stock. If the stock price is significantly above the GF Value Line, it suggests overvaluation and potentially poor future returns. Conversely, if it is significantly below the GF Value Line, the stock may be undervalued, indicating higher future returns.
Given this analysis, Rockwell Automation's stock appears to be modestly undervalued. As such, the long-term return of its stock is likely to be higher than its business growth.
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Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's crucial to review a company's financial strength before deciding to buy shares. Rockwell Automation has a cash-to-debt ratio of 0.11, ranking worse than 91.4% of 2836 companies in the Industrial Products industry. Based on this, GuruFocus ranks Rockwell Automation's financial strength as 6 out of 10, suggesting a fair balance sheet.
Profitability and Growth
Investing in profitable companies is less risky, especially those that have demonstrated consistent profitability over the long term. Rockwell Automation has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $8.60 billion and an EPS of $12.26. Its operating margin is 18.87%, which ranks better than 90.11% of 2861 companies in the Industrial Products industry. Overall, GuruFocus ranks the profitability of Rockwell Automation at 9 out of 10, indicating strong profitability.
Growth is a crucial factor in the valuation of a company. Rockwell Automation's 3-year average revenue growth rate is worse than 51.94% of 2734 companies in the Industrial Products industry. Its 3-year average EBITDA growth rate is 8.4%, ranking worse than 51.73% of 2424 companies in the industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted cost of capital (WACC) is another way to evaluate its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Rockwell Automation's ROIC was 13.91, while its WACC came in at 11.24.
Conclusion
Overall, Rockwell Automation (ROK, Financial) stock is estimated to be modestly undervalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks worse than 51.73% of 2424 companies in the Industrial Products industry. To learn more about Rockwell Automation stock, you can check out its 30-Year Financials here.
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