Is HAL Really Cheap?
Often stocks will seem like a great deal from a first glance. Sometimes they are, other times it can be a bit more deceiving. So where does Halliburton fit into the picture? Le’ts investigate further. Anand Chokkavelu does a great job of breaking down the numbers to understand what is really going on here.
The current price multiples
First, we’ll look at most investors’ favorite metric: the P/E ratio. It divides the company’s share price by its earnings per share (EPS) — the lower, the better….
Halliburton has a P/E ratio of 12.1 and an EV/FCF ratio of 57.5 over the trailing 12 months. If we stretch and compare current valuations to the five-year averages for earnings and free cash flow, Halliburton has a P/E ratio of 13.6 and a five-year EV/FCF ratio of 34.2.
A positive one-year ratio under 10 for both metrics is ideal (at least in my opinion). For a five-year metric, under 20 is ideal.
The consistency of past earnings and cash flow
An ideal company will be consistently strong in its earnings and cash flow generation.
In the past five years, Halliburton’s net income margin has ranged from 8.6% to 23.8%. In that same time frame, unlevered free cash flow margin has ranged from 2.5% to 13.2%.
How much growth we can expect
Analysts tend to comically overstate their five-year growth estimates. If you accept them at face value, you willoverpay for stocks. But while you should definitely take the analysts’ prognostications with a grain of salt, they can still provide a useful starting point when compared to similar numbers from a company’s closest rivals.
Let’s start by seeing what this company’s done over the past five years. In that time period, Halliburton has put up past EPS growth rates of 3.5%. Meanwhile, Wall Street’s analysts expect future growth rates of 23.7%.
Overall, Halliburton’s growth and profit margins are what makes this stock a decent investment. That is what sets it apart from its competitors. This is a pretty solid stock, and could be worth your further research and investment.
Quotes taken from report by Anand Chokkavelu, Read the entire article here.
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