Philips share Price seems to be lower than Graham Value

Philips has had quality problems with sleep and respiratory care devices. Shareholders were unhappy with the CEO Frans van Houten keeping his bonus. Now he is being replaced. Today the shares seem cheap, but Philips is not a stock for the Graham Defensive investor.

SECTOR: [PASS] Philips is neither a technology nor financial Company, and therefore this methodology is applicable. 

SALES: [PASS] The investor must select companies of "adequate size". This includes companies with annual sales greater than €260 million. Philips' sales of €17 342 million, based on 2021 sales, pass this test. Sales have been declining.

CURRENT RATIO: [FAIL] The current ratio must be greater than or equal to 2. Companies that meet this criterion are typically financially secure and defensive. Philips' current ratio €10 347m/€7 450 of 1.4 fails the test.

LONG-TERM DEBT IN RELATION TO NET CURRENT ASSETS: [FAIL] 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 Philips is €9 037 million, while the net current assets are €2 897 million. Philips fails this test.

LONG-TERM EPS GROWTH: [FAIL] 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. EPS for Philips haven't grown significantly over the past 10 to 15 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. Philips's E/P of 0% (using this year's loss) fails this test.

Graham Number value: [PASS] The Price/Book ratio must also be reasonable. That is the Graham number value must be greater than the market price. Philips has a Graham number of √(15 x €1,7 EPS x 1,5 x €15 Book Value) = €24 and passes this test. 

Dividend €0,85/€18 = 5%