I've been holding Exxon Mobil (XOM) shares since 1999 and this is one of my all time favorite stocks. The company is committed to growing while rewarding stockholders with dividends and stock repurchases. In this article I will examine to see whether Exxon Mobil's valuation justified.
Here is a chart showing Exxon's stock price movements in the last decade. In the last 10 years, the stock price moved from $38.35 to its current price of $84.92. This indicates a return of 121% in the last decade excluding dividends.
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10 years ago, the company had a quarterly EPS of 30 cents. Today this number is $1.97. This indicates a growth of 556%, a much bigger growth than the company's market cap growth. According to the company's EPS growth, Exxon Mobil is undervalued by a large margin.
Next, we will look at Exxon Mobil's book value growth compared to its stock price growth. In the last 10 years, the company's book value increased from $72.37 billion to $162.21 billion. The book value growth of the company in the last decade is 124%, which is in line with its stock price growth. In this metric, the stock looks fairly valued.
10 years ago, the company's free cash flow was $2.20 billion. Today, the company has a free cash flow of $7.40 billion. This indicates an increase of 235.55% in company's free cash flow in the last decade. In this metric, the stock looks undervalued.
Exxon Mobil's revenues increased sharply in the last 10 years, from $43.98 billion to $121.61 billion. This revenue growth of 180% provides further evidence that Exxon Mobil is undervalued.
The charts above show that Exxon Mobil is undervalued. Even the most conservative estimates would see this company as at least fairly valued. Given that the company has very low debt compared to its assets (i.e., a ratio of 0.1), its commitment to buy back stocks and its strong dividend history, Exxon Mobil is definitely undervalued and I suggest long term investors to get shares of this company. I personally keep increasing the number of shares I have of this company through dividend reinvestments.
Disclosure: I am long XOM.