Harsco Stock Is Believed To Be Possible Value Trap

GuruFocus.com
·4 min read

- By GF Value

The stock of Harsco (NYSE:HSC, 30-year Financials) is believed to be possible value trap, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $17.84 per share and the market cap of $1.4 billion, Harsco stock is believed to be possible value trap. GF Value for Harsco is shown in the chart below.


Harsco Stock Is Believed To Be Possible Value Trap
Harsco Stock Is Believed To Be Possible Value Trap

The reason we think that Harsco stock might be a value trap is because

Link: These companies may deliever higher future returns at reduced risk.

Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. Harsco has a cash-to-debt ratio of 0.06, which which ranks in the bottom 10% of the companies in Industrial Products industry. The overall financial strength of Harsco is 3 out of 10, which indicates that the financial strength of Harsco is poor. This is the debt and cash of Harsco over the past years:

Harsco Stock Is Believed To Be Possible Value Trap
Harsco Stock Is Believed To Be Possible Value Trap

Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Harsco has been profitable 4 over the past 10 years. Over the past twelve months, the company had a revenue of $1.9 billion and loss of $0.33 a share. Its operating margin is 1.71%, which ranks worse than 70% of the companies in Industrial Products industry. Overall, the profitability of Harsco is ranked 4 out of 10, which indicates poor profitability. This is the revenue and net income of Harsco over the past years:

Harsco Stock Is Believed To Be Possible Value Trap
Harsco Stock Is Believed To Be Possible Value Trap

Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term stock performance of a company. A faster growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Harsco is 13.3%, which ranks better than 79% of the companies in Industrial Products industry. The 3-year average EBITDA growth rate is -6.1%, which ranks worse than 71% of the companies in Industrial Products industry.

Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Harsco's return on invested capital is 1.20, and its cost of capital is 10.45. The historical ROIC vs WACC comparison of Harsco is shown below:

Harsco Stock Is Believed To Be Possible Value Trap
Harsco Stock Is Believed To Be Possible Value Trap

In summary, Harsco (NYSE:HSC, 30-year Financials) stock is estimated to be possible value trap. The company's financial condition is poor and its profitability is poor. Its growth ranks worse than 71% of the companies in Industrial Products industry. To learn more about Harsco stock, you can check out its 30-year Financials here.

To find out the high quality companies that may deliever above average returns, please check out GuruFocus High Quality Low Capex Screener.

This article first appeared on GuruFocus.

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