Linde PLC (NYSE:LIN) engages in the production and distribution of industrial gases. The company was founded in 1879 and is headquartered in Guildford, United Kingdom.
As of 22 Mar 2022, Linde PLC's stock is trading at $311 and is down by 8% year-to-date (YTD). Over the past 12 months, the stock is up by 15%, whilst the S&P 500 is up by 14%, which means the stock has slightly outperformed the broader market by approximately 1% over this period.
But is Linde PLC worth considering as a long-term investment? Let’s take a look at the company’s outlook based on the most recent financial data to see if we can get any insights.
Why are fundamentals important?
On balance, stock prices are usually driven by a company’s financial performance over the long term, and it makes sense to analyze a company’s fundamentals in detail before deciding to invest.
By 'fundamentals', we mean a set of key metrics which include price to earnings ratio (P/E ratio), earnings per share (EPS), price to sales ratio (P/S ratio), price to book value (P/BV) and debt. When looked at together, fundamentals can tell us whether or not a company is likely to be a good investment, and for as long as investors have been buying stocks, they have relied on fundamentals to assess the financial health of an organization as well as its growth prospects.
What do Linde PLC’s fundamentals tell us about the investment opportunity? Let's have a look.
Linde PLC's stock by the numbers
First, let's look at the EPS. This metric is important to help us understand how profitable the company is on a 'per share' basis, and it is calculated as net income (after dividends on preferred stock) divided by the number of outstanding shares. So if a company has $1 million in profit and 1 million shares of outstanding stock, it will have an EPS of 1.
Linde PLC's EPS is 7.3 according to its most recent financials, and this increased by 56% year-on-year, which is a positive sign.
Analyzing a company's price to earnings (P/E) ratio is also helpful to tell us how cheap or expensive a stock is, or how much of a premium investors are willing to pay for its earnings. It is calculated by taking the price of a stock and dividing this by the EPS. A higher ratio suggests that the stock is expensive in relation to its earnings, and a lower ratio indicates the opposite.
Based on its most recent financial statements, LIN has a P/E ratio of 42.4. This is 143% higher than the average P/E ratio across its industry (which is 17.4) and indicates that the stock is quite expensive in relation to how much it earns.
Next, let's look at one of the most common valuation metrics - the P/S ratio. It is calculated as the current price divided by sales for the previous 12 months, and helps us get a sense of how much investors are willing to pay for a company's revenues on a 'per dollar' basis.
Based on its most recent financial data, Linde PLC's P/S ratio is currently 5.3. Compared to the sector-wide average of 2, this is 159% higher, indicating that the stock may offer less value compared to other companies in the same sector.
Another key metric to look at is a company's price to book value (P/BV), which tells us how much investors are willing to pay for a company's assets. It is calculated by the company's stock price divided by its net assets (or 'book value', meaning the value of all assets which appear 'in its book'). P/BV is used by value investors to identify potential investments, and a P/BV of 1 is usually considered a solid investment.
According to its most recent financial statements, Linde PLC's P/BV is 3.6, and this is 8% higher than the average across the industry, which is 3.3.
Finally, when analyzing a company as an investment opportunity, you should always take a look at how much debt they have on their books, as this can help you assess how risky a company is as an investment. Carrying a large amount of debt can be a red flag if the company is not generating enough free cash flow to service the debt.
Linde PLC has total debt of $15216M as of 22 Mar 2022, and this has decreased by 12% over the past year. The company also has cash & short-term investments totalling $2823M on-hand, giving it a 'net debt' of $12393M.
Based on these figures, there's no denying that Linde PLC's current levels of net debt are a bit higher than we would like to see.
The bottom line on Linde PLC's stock
All in all, when we looked at the underlying trends at Linde PLC, they didn't give us much confidence.
To be more specific, the stock is down by 8% YTD and the company has higher P/E ratio, higher P/BV, higher P/S ratio compared to competitors within the same industry. This just doesn't give us confidence that the company is on the right track, and all things considered, we're lukewarm on Linde PLC's prospects as a long-term investment at the moment.
As with any stock however, there are additional factors to consider before making an investment decision. This article does not look at the macro environment where geopolitical headwinds, internal company changes and individual technicalities in the way a company conducts its business can have a significant impact on a company's long term outlook. Please do your own due diligence before buying shares.