Is Chevron Correctly Valued?

| About: Chevron Corporation (CVX)

As one of the largest oil companies in the world, Chevron (NYSE:CVX) has always attracted many investors. The California based oil company offers a dividend rate of 3.06% and it delivered long term investors a capital appreciation of 148% in the last 10 years. Is Chevron now correctly valued? In this article we will investigate the answer to this question.

Stock Price vs. Book Value

In the last decade, the company's book value moved from $34.12 billion to $121.38 billion, indicating a growth of 255%. This growth has been much bigger than the company's stock price appreciation. In this metric, the stock has been undervalued since the market crash of 2008.

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Stock Price vs. Revenue

Ten years ago, the company's revenue was $21.16 billion, whereas it is $59.98 billion today. This indicates a revenue growth of 184% in the last 10 years. This is slightly better than the company's stock price appreciation in the same period. In this metric, the stock looks slightly underpriced.

Stock Price vs. Earnings

Since 2002, the company's earnings witnessed a huge jump, up to $2.58 per share from 34 cents per share 10 years ago. This is a EPS growth of 658%, shadowing the company's stock price appreciation by a large margin.

Stock Price vs. Free Cash Flow

The company's free cash flow improved from -$776 million to $4.75 billion in the last decade. This is a tremendous growth, making the stock undervalued by large margin.

Conclusion, Chevron is an undervalued stock. The company's stock price seems like it recovered from 2009 lows, however it never kept up with the organic growth of the company. I rate Chevron as buy for long term investors.

Disclosure: I am long CVX.