Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk. This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Companies Benjamin Graham Would Invest In Today – February 2016. By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries. What follows is a stock analysis showing a specific look at how Ametek Inc (AME) fares in the ModernGraham valuation model.
Company Profile (obtained from Google Finance): AMETEK, Inc. (AMETEK) is a manufacturer of electronic instruments and electromechanical devices with operations in North America, Europe, Asia and South America. AMETEK markets and sells its products through two groups: Electronic Instruments (EIG) and Electromechanical (EMG). The Company’s EIG segment designs and manufactures advanced instruments for the process, aerospace, power and industrial markets. It offers process control instruments for the oil and gas, petrochemical, pharmaceutical, semiconductor and factory automation industries. The Company’s EMG segment offers electrical connectors and electronics packaging used in aerospace and defense, medical and industrial applications, as well as its advanced technical motor and motion control products, which are used in a range of medical devices, office and business equipment, factory automation, robotics and other applications.
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Downloadable PDF version of this valuation:
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
|Defensive Investor; must pass 6 out of the following 7 tests.|
|1. Adequate Size of the Enterprise||Market Cap > $2Bil||$11,084,810,550||Pass|
|2. Sufficiently Strong Financial Condition||Current Ratio > 2||1.72||Fail|
|3. Earnings Stability||Positive EPS for 10 years prior||Pass|
|4. Dividend Record||Dividend Payments for 10 years prior||Pass|
|5. Earnings Growth||Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end||156.24%||Pass|
|6. Moderate PEmg Ratio||PEmg < 20||20.21||Fail|
|7. Moderate Price to Assets||PB Ratio < 2.5 OR PB*PEmg < 50||3.30||Fail|
|Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.|
|1. Sufficiently Strong Financial Condition||Current Ratio > 1.5||1.72||Pass|
|2. Sufficiently Strong Financial Condition||Debt to NCA < 1.1||2.44||Fail|
|3. Earnings Stability||Positive EPS for 5 years prior||Pass|
|4. Dividend Record||Currently Pays Dividend||Pass|
|5. Earnings Growth||EPSmg greater than 5 years ago||Pass|
Stage 2: Determination of Intrinsic Value
|MG Growth Estimate||12.83%|
|MG Value based on 3% Growth||$32.55|
|MG Value based on 0% Growth||$19.08|
|Market Implied Growth Rate||5.85%|
|% of Intrinsic Value||59.15%|
Ametek Inc qualifies for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio as well as the high PEmg and PB ratios. The Enterprising Investor is only initially concerned with the level of debt relative to the net current assets. As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.
As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.21 in 2011 to an estimated $2.24 for 2015. This level of demonstrated earnings growth outpaces the market’s implied estimate of 5.85% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.
Stage 3: Information for Further Research
|Net Current Asset Value (NCAV)||-$7.20|
|Number of Consecutive Years of Dividend Growth||6|
|ModernGraham tagged articles||Morningstar|
|Google Finance||MSN Money|
|Yahoo Finance||Seeking Alpha|
Most Recent Balance Sheet Figures
|Balance Sheet Information||Sep2015|
|Total Current Assets||$1,590,740,000|
|Total Current Liabilities||$925,477,000|
|Shares Outstanding (Diluted Average)||241,238,000|
Earnings Per Share History
|Next Fiscal Year Estimate||$2.51|
Earnings Per Share – ModernGraham History
|Next Fiscal Year Estimate||$2.24|
Other ModernGraham posts about the company
|12 Best Stocks For Value Investors This Week – 11/7/15|
|28 Companies in the Spotlight This Week – 11/1/14|
|Ametek Inc. Annual Valuation – 2014 $AME|
Other ModernGraham posts about related companies
The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours. See my current holdings here. This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions. ModernGraham is not affiliated with the company in any manner. Please be sure to review our detailed disclaimer.