It’s always important to make sure that you’re getting the best value for your money. These are three overvalued, large-cap companies that you should think twice about before investing in.
Using our proprietary tool, we screened over 5,500 companies to find these companies that are overvalued with lackluster fundamentals. These stocks are overvalued according to their growth rate (FCF), using a 15% discount rate. We hope you’ll use this list as a starting point for your analysis.
Accenture (ACN), full report here. Accenture operates as a management consulting, technology services and outsourcing company. Its management consulting services include customer relationship management, finance and performance management, process and innovation performance, risk management, strategy and more. Accenture recently reported earnings of $0.93 per shares on sales of $7.2 billion, beating analysts’ estimates by $772.8 million. It also recently announced that it's been awarded a three-and-a-half-year, $70 million contract from the Norwegian Armed Forces.
- Excellent CROIC, ROE, and positive FCF over the last 10 years (200.05% CROIC, 62.79% ROE and $2.85B in 2010).
- Consistently weak balance sheet. (TL-to-TA 0.78 in 2010).
- Competitive industry but net profit margin is growing (5.79% net profit margin in 2007 to 7.71% net profit margin in 2010).
- Declining pricing power since 2001 (40.15% Gross Margin in 2001 to 31.40% Gross Margin in 2010).
Current Price: $61.43
Growth Price: $46.15
Overvalued by: 24.87%
Vuru Grade: 43.73/100
Schlumberger (SLB), full report here. Schlumberger Ltd. and its subsidiaries supply technology, integrated project management, and information solutions to the oil and gas industry worldwide. They offer a range of exploration and product services required during the life of an oil and gas reservoir. Schlumberger also beat estimates with a 64 percent jump in profit on strong U.S. demand and deepwater drilling and improving international market conditions.
- Excellent positive free cash flow but declining since 2008. (3.24B in 2008 to 2.58B in 2010.)
- Consistently retained profits since 2004. (14.49% Retained Earnings Growth in 2010.)
- Inconsistent balance sheet health but it’s improving. (TL-to-TA 0.40 in 2010.)
- High capital intensity where 130.38% of profits are spent on capital expenditures.
- Also overvalued by stability price and net current asset price.
Current Price: $94.86
Growth Price: $45.43
Overvalued by: 52.11%
Vuru Grade: 51.38/100
Caterpillar Inc. (CAT), full report here. Caterpillar Inc. manufactures and sells construction and mining equipment, diesel and natural gas engines, industrial gas turbines and diesel-electric locomotives worldwide. It operates three lines of businesses: Machinery, Engines and Financial Products. CAT has not been able to beat earnings estimates as it disappointed Wall Street with a second-quarter earnings miss last Friday. It cites slow economic growth in the United States as well as the sluggish pace of the developing economies and China, which has contributed to the disappointing figures.
- Excellent positive free cash flow and return on equity. (3.43B Positive FCF and 24.94% ROE in 2010.)
- Pricing power has been satisfactory and stable since 2001 (28.70% Gross Margin in 2010).
- Acceptable CROIC over the last 10 years, but most years are less than great (8.94% CROIC in 2010).
- Consistently weak balance sheet (TL-to-TA 0.83).
- Extremely high capital intensity (58.33% Capital Expenditure Ratio in 2010).
Current Price: 105.68
Growth Price: 78.54
Overvalued by: 25.68%
Vuru Grade: 41.10/100