Ferroglobe: Ride The Commodities Price Boom With This Undervalued Stock

Summary

• This article seeks to provide a valuation and pricing mechanism for Ferroglobe PLC.
• We will find a pricing mechanism for Ferroglobe by comparing its financial metrics to the rest of the U.S. market, assess its financial health, and attempt to find a valuation.
• I give Ferroglobe PLC an overall financial health score of 97.50%, and an 83.35% current price attractiveness score relative to the peer comparison group.
• Ferroglobe PLC is enjoying the windfalls of the commodities price boom and is seeing heightened profits.

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A preferred method of mine to review and analyze stocks is the peer comparison method. While it doesn’t give the user a complete picture of the firm on its own, I find that, using the right tools, it can serve as an excellent initial starting point to analyze a firm’s price attractiveness relative to the market and determine which stocks are worthy of further investigation. Pair this with a review of the firm’s financial health, before working to find the best pricing mechanisms for the firm, and you’re holding a fairly comprehensive “first look” at a company.

One firm that has appeared on my radar for all the right reasons is Ferroglobe PLC (NASDAQ:GSM). GSM has underperformed the broader market over the past 5 years, however in this article we will attempt to uncover if the firm has been recently mispriced and determine if there is an opportunity to be uncovered for investors.

Ferroglobe provides silicone chemicals that are used in a range of applications such as medicines, cosmetics, and shampoos. Silicon is a key component in electronics and is projected to be a strong growth market over the next decade. Further to this, Ferroglobe has just announced that it intends to reopen a South African plant to meet growing global demand, adding significant production capacity.

We will be comparing GSM to the “All U.S. Stocks” screener on Seeking Alpha, which includes 2,462 of the largest U.S. stocks on the market.

Trading View

(Data & prices correct as of pre-market 5th November 2022. The “All U.S. Stocks” list referred to in this article can be found on this Seeking Alpha screener.)

Ferroglobe’s Base Financial Health

To start any analysis, we begin by looking at the firm’s financial health and assess the balance sheet.

Looking across the board, there are very few concerning areas for GSM. The firm carries a reasonably moderate level of debt compared to the comparison group, has above average margins and excellent revenue and earnings outlooks (noting that the firm has operated at an EPS loss until recently).

Author

Averaging the firm’s scores and applying weights, we see GSM earns an excellent 97.5% financial health score overall.

Author

Next we look at the firm’s valuation metrics to get a basic view of GSM’s current pricing attractiveness.

Assessing Ferroglobe’s Pricing Attractiveness

Across the board, GSM’s current pricing appears to present an excellent buying opportunity for investors, with an average score of 85.25%, and when weights are applied, an overall 83.35% weighted score.

Author

It’s worth noting that this is not a valuation method for GSM, but rather, a look at how the firm’s pricing metrics compare to the comparison group.

Finding An Appropriate Valuation Method For Ferroglobe

First we look at a list of standard and non-standard valuation metrics to get a good overall sense of a potential valuation for the firm. We then look at how each metric rates for valuing the wider market (looking at the metric variation, P/S correlation and market cap correlation).

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Narrowing our view down to just the “quieter” metrics with lower variation, we see a shortlist of appropriate valuation metrics to consider more closely.

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This method leaves us with the impression that GSM is significantly undervalued compared to the All U.S. Stocks list, thanks to a healthy balance sheet and solid recent financial performance, along with an exceptional revenue and earnings outlook.

Closing Remarks

With a comprehensive first look at GSM, we are left with an impression that the firm presents a solid Buy opportunity for investors.

With that said, it would be irresponsible of me not to point out that this analysis is limited in its scope to just a quantitative peer analysis. While we do look at the firm's financials, it does not go searching for detail and context that one might find reading earnings transcripts. Further, the analysis is of the market as a whole but does not consider the specific industry the firm operates in, and does not break down a near-peer comparison. Investors should use this analysis as a base line for their analysis, but spend time looking at the firm’s qualitative aspects to further inform their thinking.

Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.