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 Signify N.V. at a discount.
Signify N.V., together with its subsidiaries, develops, manufactures, and sells lighting products worldwide. Started in 1891, and led by CEO Eric Rondolat, the company employs 29.24k people and with the company’s market cap sitting at €2.9b, it falls under the mid-cap category. Size matters. The bigger the company is, the more well-resourced it is. The more money it produces from its operations which means it is less reliant on external funding. When times are bad in the market, being self-sufficient is extremely important as you can continue to operate at your own pace. Therefore, large cap companies are a great bet to invest in when you’re heading to the bottom of the cycle.
Currently Signify has €1.3b on its balance sheet, which requires regular interest payments. This requires the business to have enough cash to meet these upcoming interest expenses. Signify generates enough earnings to cover its interest payments, more specifically, its interest coverage ratio (EBIT/interest) is 35.4x, which is well-above the minimum requirement of 3x. Furthermore, its operating cash flows amply covers its total debt by 30%, which is higher than the bare minimum requirement 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.
LIGHT’s profit growth over the previous five years has been positive, with an average annual rate of 16%, outpacing the industry growth rate of 12%. It has also returned an ROE of 12% recently, above the industry return of 10%. This consistent market outperformance illustrates a robust track record of delivering strong returns over a number of years, increasing my conviction in Signify as an investment over the long run.
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. Signify 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 LIGHT’s future growth? Take a look at our free research report of analyst consensus for LIGHT’s outlook.
- Valuation: What is LIGHT 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 LIGHT 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 email@example.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.