DuPont (NYSE: DD) operates as a holding company engaged in the development of specialty materials, chemicals, and agricultural products. The company was founded in 1897 and is headquartered in Wilmington, DE.
DuPont's stock is trading at $76, as of 23 Mar 2022, and year-to-date (YTD), it is down by 6%. Over the past year, the stock is up by 1% whilst the S&P 500 is up by 15%, meaning the stock has underperformed the market by approximately 14% over this period.
But is DuPont worth considering as a 'buy and hold' investment? Let’s take a closer look and see what the numbers tell us.
Why are fundamental metrics important?
Fundamentals are important because the price of a company's stock is usually tied to them over the long-term. Thus, it makes sense to start by looking at DuPont's fundamentals when we are considering if it has the makings of a 'buy and hold' investment.
‘Fundamentals’ are a set of key metrics which can help you, as an investor, assess the financial health of an organization as well as its growth prospects.
There are a number of fundamental metrics to look at, but the ones we'll focus on are price to earnings ratio (P/E ratio), earnings per share (EPS), price to sales ratio (P/S ratio), price to book value (P/BV) and debt. When they are analyzed together, these metrics can start to 'paint the picture' and help you understand if a company is a solid investment.
With this in mind, let's take a look at DuPont’s fundamentals and see if they can tell us anything about the company’s potential as an investment opportunity.
First of all, let's look at its EPS, which indicates how profitable the company is on a 'per share' basis. This metric is calculated as net income (after dividends on preferred stock) divided by the number of outstanding shares.
DuPont's EPS is 11.9 based on figures from its most recent financial statements, and year-on-year, this grew by 2%, which we like to see.
Another key metric to look at is the P/E ratio because it immediately tells a potential investor how cheap or expensive the stock is. The ratio tells us how much investors are willing to pay for a company’s earnings, and it is calculated by taking the price of a stock and dividing it by the EPS. A higher ratio suggests that the stock is expensive in relation to its earnings, and a lower ratio indicates it might offer more value.
According to its most recent financial statements, DD has a P/E ratio of 6.5. This is 22% lower than the average P/E ratio across its industry (which is 8.3) and indicates that the stock may be undervalued compared to companies in the same sector at present.
Next, let's look at the P/S ratio, which looks at a company's stock price compared to its sales (revenues). It is calculated as the current price divided by sales for the previous 12 months, and is useful because it helps us understand how much investors are willing to pay for every dollar of a company's revenues.
DuPont's P/S ratio is currently 2.5 based on figures from its most recent financials. This is 38% higher than the sector-wide average of 1.8. The fact that it is currently above the sector-wide average isn't particularly encouraging, and indicates that the stock may offer a bit less value compared to other companies in the same sector.
Next, let's look at DuPont's price to book value (P/BV), which tells us how much investors are willing to pay for a company's assets. P/BV is used by value investors to identify potential investments, and is calculated by the company's stock price divided by its net assets (or 'book value', meaning the value of all assets which appear 'in its book').
DuPont's P/BV is 1.5, according to its most recent financial statements, which is 29% lower than the industry benchmark of 2.1.
Finally, it's always worth looking at a company's debt profile before deciding to invest in order to assess the risk. A high amount of debt can be a problem if a company is not generating enough cash flow to service its debt, and some sectors rely on debt more heavily than others.
DuPont has total debt of approximately $11.2bn as of 23 Mar 2022, and this has fallen by 50% over the past year. The company also has cash & short-term investments totalling $2bn on-hand, giving it a 'net debt' of $9.2bn.
Based on these figures, there's no denying that DuPont's current levels of net debt are a bit higher than we would like to see.
Is DuPont worth a look?
All in all, the underlying trends at DuPont that paint a mixed picture with regards to its outlook as a 'buy and hold' investment.
In particular, the stock is up by 1% over the past year but down by 6% YTD. And whilst it's good to see that it is showing positive EPS growth y/y, we can't ignore the fact that it has a higher P/S ratio compared to competitors within the same industry and may be relying on debt a bit too much.
In summary, there isn't enough for us to say we're convinced DuPont deserves a place in your portfolio right now, but it is certainly worth adding the stock to your watchlist.
As with any stock however, there are additional factors to consider before making an investment decision. This analysis is general in nature, based on historical data, and does not take into account your specific investing objectives or financial circumstances. Additionally, this article does not look at the macro environment where geopolitical headwinds, internal company changes and individual technicalities in the way a company conducts its business can have a significant impact on a company's long-term outlook. Please do your own due diligence before deciding to invest.