AKRN’s current PE is 10.84x based on past earnings, which is within a fair range of the Chemicals’s average of 10.25x. Yes, this sober multiple may convince you to look elsewhere, but there are many company-specific elements which are not captured in such a static ratio – such as its growth outlook and debt obligations. This article will cover some key aspects we should consider in order to determine the best multiple to be used for AKRN. Let’s dive in.
Is AKRN making any money?
The PE multiple is useful for when a company is profitable, which is the case with AKRN. This is because using PE to value an unprofitable business is flawed since the company has negative earnings (this will create a negative ratio). Companies like this are often valued based off other relevant factors, using multiples like P/S (price-to-sales) or P/FCF (price-to-free-cash-flow) depending on the business characteristics. Previously, AKRN has always produced a positive bottom line. As earnings forecasts indicate the positive trend will continue, the PE multiple can be an acceptable tool to assess the AKRN’s value, however, there may be a better option.
Is AKRN in a lot of debt?
Generally, debt should be below 40% of equity. Given that ’s debt-to-equity ratio is currently 85.49%, there’s room for improvement. This ratio indicates that for every RUB1 you invest, the company owes RUB0.85 to debtors. This means that if the company were to go bankrupt, equity investors have a lower claim on assets than debt providers that is owed the lion’s share of assets. You may be wondering how debt impacts an equity valuation. Well, the company’s share price theoretically represents the value of its equity portion only. However, it’s crucial to account for debt as well, since debt represents a liability to the owner, and it impacts the earnings capacity and risk profile of the company. The EV/EBITDA multiple, which uses EV as a substitute for share price, allows us to incorporate debt into our valuation.
AKRN’s EV/EBITDA = RUруб253.18b / RUруб0 = 8.36x
Does AKRN have a fast-growing outlook?
With an expected annual growth rate of 12.37% each year for the next five years, I’d say AKRN has an upbeat growth outlook. However, current earnings don’t reflect any of this potential growth, which isn’t ideal as you are using past values to gauge future performance. You should pay for what you’re going to get, not what’s already happened. Let’s adjust our previous multiple for future expectations by using projected EBITDA for the next year.
AKRN’s forward EV/EBITDA = RUруб253.18b /RUруб30.75b = 8.23x
Looking at relative valuation alone does not give you a complete picture of an investment. There are many important factors I have not taken into account in this article. If you have not done so already, I highly recommend you to complete your research by taking a look at the following:
- Future Outlook: What are well-informed industry analysts predicting for ’s future growth? Take a look at our free research report of analyst consensus for ’s outlook.
- Past Track Record: Has been consistently performing well irrespective of the ups and downs in the market? Go into more detail in the past performance analysis and take a look at the free visual representations of ‘s historicals for more clarity.
- 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.