Saturday, June 10, 2017

Gemalto improved balance sheet and Price vs intrinsic Value

Last time I looked at Gemalto:  the price was 60 Euros and it failed the Benjamin Graham Defensive investor balance sheet tests. Things look better now. 

SECTOR: [FAIL]  Gemalto  is a IT Security company in a rapidly changing environment. 

SALES: [PASS] The investor must select companies of "adequate size". This includes companies with annual sales greater than €260 million. Gemalto's sales of €2 136 million, based on 2016 sales, passes this test.

CURRENT RATIO: [PASS]  The current ratio must be greater than or equal to 2. Companies that meet this criterion are typically financially secure and defensive. Gemalto's current ratio €1 947m/€989m of 2,0 passes this test.

LONG-TERM DEBT IN RELATION TO NET CURRENT ASSETS: [PASS]  For industrial companies, long-term debt must not exceed net current assets (current assets minus current liabilities). Companies that do not meet this criterion lack the financial stability that this methodology likes to see. The long-term debt for Gemalto is €823 million, while the net current assets are  €958 million. Gemalto passes this test.

LONG-TERM EPS GROWTH: [PASS] Companies must increase their EPS by at least 30% over a ten-year period and EPS must not have been negative for any year within the last 5 years. Companies with this type of growth tend to be financially secure and have proven themselves over time. Gemalto's earnings have increased 60% over the past ten years. 

Earnings Yield: [FAIL] The Earnings/Price (inverse P/E) %, based on the lesser of the current Earnings Yield or the Yield using average earnings over the last 3 fiscal years, must be "acceptable", which this methodology states is greater than 6,5%. Stocks with higher earnings yields are more defensive by nature. Gemalto's E/P of 4% (using the average Earnings over the past 3 years) fails this test.

Graham Number value: [FAIL]  The Price/Book ratio must also be reasonable. That is the Graham number value must be greater than the market price. Gemalto has a Graham number of (15 x €2,0 EPS x 1,5 x €30 Book Value) = €36,6 

Dividend: €0.50/€52 = 1% 

Conclusion last year at 60 Euros: Gemalto is not a stock for the Defensive Investor. Now: It might be a buy under 35 Euros.

For more value investing stock analysis see:

Comments, questions or E-mails welcome:

No comments: