Neste Oyj (HEL:NESTE): How To Win In A Volatile Market

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The risk of investing in the stock market is a systematic crash. This is when all the stock prices start falling around the same time. But this risk is also an opportunity for those that understand the fickle nature of the market. High quality, proven companies tend to stick around in the long run, although their share price may be temporarily impacted by a crash. This is the best time to buy stocks like Neste Oyj at a discount.

See our latest analysis for Neste Oyj

Neste Oyj provides renewable and oil products in Finland and other Nordic countries, Baltic Rim, other European countries, North and South America, and internationally. Founded in 1948, and led by CEO Peter Z. Vanacker, the company employs 5.51k people and with the market cap of €23b, it falls under the large-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.

HLSE:NESTE Historical Debt, May 6th 2019
HLSE:NESTE Historical Debt, May 6th 2019

Currently Neste Oyj has €1.4b on its balance sheet, which requires regular interest payments. This requires the business to have enough cash to meet these upcoming interest expenses. With an interest coverage ratio of 32.57x, Neste Oyj produces sufficient earnings (EBIT) to cover its interest payments. Anything above 3x is considered safe practice. Furthermore, its operating cash flows amply covers its total debt by 90%, above the safe minimum of 20%. Not to mention, it meets the basic liquidity requirement with current assets exceeding liabilities, which further builds on its financial strength in the face of a volatile market.

HLSE:NESTE Income Statement, May 6th 2019
HLSE:NESTE Income Statement, May 6th 2019

NESTE’s annual earnings growth rate has been positive over the last five years, with an average rate of 23%, outpacing the industry growth rate of 18%. It has also returned an ROE of 15% recently, above the industry return of 12%. Neste Oyj’s strong performance over time is a demonstration of its ability to grow through cycles, raising my confidence in the company as a long-term investment.

Next Steps:

Based on these three factors, NESTE makes for a strong long-term investment in the face of a fickle stock market. If you’re a risk averse investor, lining your portfolio with proven companies you’re willing to buy more and more of as the price falls, is a good strategy to build your wealth over the long run. This is the beginning of your research, but before you decide to buy NESTE, I highly urge you to understand more about the company, in particular, in these following areas:
  1. Future Outlook: What are well-informed industry analysts predicting for NESTE’s future growth? Take a look at our free research report of analyst consensus for NESTE’s outlook.
  2. Valuation: What is NESTE 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 NESTE is currently mispriced by the market.
  3. 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 editorial-team@simplywallst.com. 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.