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Everyone is selling, the charts are red, but should you panic? Not at all. As a long term investor, my favorite time of the economic cycle is when great stocks sell at an unjustified discount. Today I want to bring to light the market’s darling – Vidrala, S.A.. Looking at its size, financial health and track record, I believe there’s an opportunity with Vidrala during these volatile times.
Vidrala, S.A. manufactures and sells glass containers in Spain, the United Kingdom/Ireland, France, Italy, Portugal, and internationally. Started in 1965, and led by CEO Gorka Schmitt Zalbide, the company employs 3.79k people and with the market cap of €2.1b, it falls under the mid-cap stocks category. Generally, large-cap stocks are well-resourced and well-established meaning that a bear market will cause it to rejig some short-term capital allocations, but stock market volatility is hardly detrimental to its financial health and business operations. Therefore large-cap stocks are a safe bet to buy more of when the wider market is going down and down.
Vidrala currently has €434m debt on its books which requires regular servicing. This means it needs to have sufficient cash-on-hand to meet upcoming interest expenses. Vidrala generates enough earnings to cover its interest payments, more specifically, its interest coverage ratio (EBIT/interest) is 22.2x, which is well-above the minimum requirement of 3x. Furthermore, its cash flows from operations copiously covers it debt by 47%, which is higher than the bare minimum requirement of 20%. Its cash and short-term investment is also sufficient to cover other upcoming liabilities, which means VID is financially robust in the face of a volatile market.
VID’s year-on-year earnings growth has been positive over the past five years, with an average annual growth rate of 17%, outperfoming the industry growth rate of 13%. It has also returned an ROE of 19% recently, above the industry return of 10%. This continuous market outperformance demonstrates a strong track record of delivering robust returns over many years, raising my confidence in Vidrala as a long-term hold.
Next Steps:Whether you’re convinced or not, the key takeaway here is that every stock gets hit in a bear market, but not every stock deserves the blow. When prices are dropping like flies, now is the time to do your research and buy at a discount. Vidrala tick the boxes in terms of its scale, financial health and proven track record, but there are a few other things I have yet to consider. Below I’ve compiled a list of factors for you to continue your reading before you buy:
- Future Outlook: What are well-informed industry analysts predicting for VID’s future growth? Take a look at our free research report of analyst consensus for VID’s outlook.
- Valuation: What is VID worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether VID is currently mispriced by the market.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.