Stock Valuation: Austal Ltd (ASB)

Name of Company Country of Origin/ Exchange Traded Sector Stock Price
AUSTAL LTD Australia/
ASX
Industrials – Aerospace & Defense – Aerospace & Defense AUD1.90
@ 03 Sep 2018
COMPANY PROFILE Austal Ltd designs and manufactures aluminium vessels. It offers passenger ferries & freight transportation vessels; defence products such as naval, patrol & auxiliary vessels; & leisure products such as cruise yachts and private vessels.

Austal Ltd designs and manufactures commercial and defense ships. Its ships can be used for various applications, including transporting tourists, offshore wind farming and gas exploration, and combat. The company serves the United States Navy, the Royal Navy of Oman, and the Australian Border Force as a global prime defense contractor. Austal has three reportable segments based on the location of production facilities and types of activity: Australia, the United States, and the Philippines. It provides lifecycle management and support services with skilled personnel. North America comprises approximately three fourths of total sales, with the remainder split between Europe, Australia, and the Middle East.

Stock Code ASB
Valuation Analysis Below

Austal Price to EBIT

The Price Earnings (PE) Ratio is the most frequently used valuation indicator for a stock. However, there are times when this ratio cannot be used e.g. when the company reports a loss or profit is so minimal that it results in an abnormally high PE Ratio. Or Net Profit After Tax may be volatile and it is better to use Earnings Before Interest and Tax (EBIT) to value the company. We use the PE Band or Price/EBIT Band to show whether a stock is overvalued or undervalued based on its historical valuation.
At the price of AUD1.90 as at 03 Sep 2018, Austal Ltd is trading at a Market Cap/EBIT Ratio of 9.9 times last 12 months earnings.  This is a 1.5% premium to its current fair P/EBIT Ratio of 9.7 times. (Price based on the historical average Market Cap/EBIT Ratio of the company is indicated by the red line.)
Is the stock overvalued? One should not just look at one indicator to determine the fair value of a stock.
ProThinker believes in using a combination of valuation methods to decide whether a stock is over or undervalued? The five ratios we use are Price to Earnings, Price to Sales, Price to Cash Flow, Price to Book and Dividend Yield. We use multiple methods to value a stock because each has its benefits as well as shortcomings. Price to Earnings and Price to Cash Flow Ratios relate stock price to profitability but are meaningless when the comany has negative earnings or cash flows. Price to Sales Ratio is more stable because sales are never negative. However, this does not tell us whether the company is able to sell profitably. Price to Book Ratio gives us an indication as to how much we are paying for the company’s assets but it is not directly related to the company’s profitability. Dividend Yield cannot be used for companies that are paying little to no dividends.
While it is important to value stocks based on multiple valuation methods, this often leads to differing views on valuation. One indicator may suggest that a stock is overvalued while another suggest that it is undervalued. This does not help an investor who needs to make a definite decision whether to buy, hold or sell the stock. That is why we advocate the use of a Composite Valuation Indicator, which is derived from the best combination of the five indicators above. A Composite Valuation Indicator will give you ONE conclusion on whether a stock is under or over valued.
To find out more about our valuation methodology, click here. 
Source of Data: Company description, historical financial statements data and price data are from gurufocus.com or moneycontrol.com. Estimates are from marketscreener.com – Thomson Reuters.
Disclaimer: This report is for information purposes only and should not be considered a solicitation to buy or sell any security. Neither ProThinker nor any other party guarantees its accuracy or makes warranties regarding results from its usage. Redistribution is prohibited without the express written consent of ProThinker. Copyright(c) 2018. All rights reserved.

 

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