3M Co (MMM, Financial) has experienced a daily loss of -1.84%, and a 3-month loss of -1.93%. Coupled with a Loss Per Share of 2.84, these figures raise the question: is the stock significantly undervalued? This article presents a comprehensive analysis of 3M Co's valuation to answer this question. Let's delve in.
Company Introduction
3M Co is a multinational conglomerate that has been in operation since 1902. Known for its research and development laboratory, 3M Co leverages its science and technology across multiple product categories. As of 2020, 3M Co is organized into four business segments: safety and industrial, transportation and electronics, healthcare, and consumer. With nearly 50% of the company's revenue coming from outside the Americas, the safety and industrial segment constitutes a plurality of net sales. 3M Co's vast product range touches and concerns a variety of consumers and end markets.
At its current price of $95.25 per share, 3M Co has a market cap of $52.60 billion. When compared to the GF Value of $151.3, the stock appears to be significantly undervalued. This suggests that the long-term return of its stock is likely to be much higher than its business growth.
Understanding GF Value
The GF Value is a unique measure of a stock's intrinsic value, calculated based on three factors: historical multiples that the stock has traded at, a GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of the business performance. The GF Value Line on our summary page provides an overview of the fair value at which the stock should ideally be traded.
If the stock price 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. The GF Value suggests that 3M Co's stock is significantly undervalued.
Assessing Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, a careful review of a company's financial strength is crucial 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. 3M Co has a cash-to-debt ratio of 0.26, which ranks worse than 63.77% of 494 companies in the Conglomerates industry. Based on this, GuruFocus ranks 3M Co's financial strength as 4 out of 10, suggesting a poor balance sheet.
Profitability and Growth
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. A company with high profit margins offers better performance potential than a company with low profit margins. 3M Co has been profitable 10 years over the past 10 years. During the past 12 months, the company had revenues of $33.10 billion and a Loss Per Share of $2.84. Its operating margin of -15.34% is worse than 90.1% of 495 companies in the Conglomerates industry. Overall, GuruFocus ranks 3M Co's profitability as strong.
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 3M Co is 3.2%, which ranks worse than 55.79% of 466 companies in the Conglomerates industry. The 3-year average EBITDA growth rate is 5.2%, which ranks worse than 61.23% of 405 companies in the Conglomerates industry.
ROIC vs WACC
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. For the past 12 months, 3M Co's return on invested capital is -6.17, and its cost of capital is 8.46.
Conclusion
In conclusion, the stock of 3M Co (MMM, Financial) is estimated to be significantly undervalued. The company's financial condition is poor and its profitability is strong. Its growth ranks worse than 61.23% of 405 companies in the Conglomerates industry. To learn more about 3M Co stock, you can check out its 30-Year Financials here.
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