Calculating The Fair Value Of Lechwerke AG (FRA:LEC)

Lechwerke AG (FRA:LEC), a leading energy supplier in Germany, has seen its stock price fluctuate over the past year, with a 6.47% change from €74.00 to its current price. As an investor, it's crucial to understand the company's fundamentals and valuation metrics to determine if the stock is overvalued, undervalued, or fairly valued. This article will delve into the key financial metrics and valuation methods to calculate the fair value of Lechwerke AG (FRA:LEC).

1. Earnings per Share (EPS): EPS represents the company's earnings divided by the number of outstanding shares. For Lechwerke AG, the EPS for the last 12 months was €3.29. To calculate the fair value, we can use the following formula:

Fair Value per Share = EPS * P/E Ratio

Assuming a P/E ratio of 10 (which is lower than Lechwerke AG's current P/E ratio of 27.01), the fair value per share would be:

Fair Value per Share = €3.29 * 10 = €32.90

2. Price-to-Earnings (P/E) Ratio: The P/E ratio compares the company's stock price to its earnings per share. A lower P/E ratio may indicate that the stock is undervalued. Lechwerke AG's P/E ratio is 27.01, which is higher than its historical average P/E ratio of 11.5x over the past decade. This suggests that the stock is currently overvalued compared to its historical averages.

3. Dividend Yield: The dividend yield represents the annual dividend payment as a percentage of the stock price. Lechwerke AG has a dividend yield of 3.97%, which is higher than the average dividend yield of 2.5% for European utilities stocks. This indicates that Lechwerke AG offers a relatively attractive dividend compared to its peers.

4. Return on Equity (ROE): ROE measures the company's profitability by comparing its net income to shareholder investments. Lechwerke AG's ROE is 26.8%, which is higher than the average ROE of 15% for European utilities stocks. This suggests that Lechwerke AG is more profitable than its peers.

5. Return on Assets (ROA): ROA measures the company's profitability by comparing its net income to total assets. Lechwerke AG's ROA is 3.46%, which is lower than the average ROA of 5% for European utilities stocks. This indicates that Lechwerke AG may not be as efficient in utilizing its assets as its peers.

6. Debt-to-Equity (D/E) Ratio: The D/E ratio compares the company's total debt to its shareholder equity. A lower D/E ratio may indicate that the company has a stronger financial position. Lechwerke AG's D/E ratio is not provided in the materials, but it is important to consider when calculating fair value.

7. Free Cash Flow (FCF): FCF represents the cash generated by the company's operations, minus capital expenditures. Lechwerke AG's FCF is €144.87 million for the last 12 months. To calculate the fair value, we can use the following formula:

Fair Value per Share = FCF per Share * P/FCF Ratio

Assuming a P/FCF ratio of 10 (which is lower than Lechwerke AG's current P/E ratio of 27.01), the fair value per share would be:

Fair Value per Share = €144.87 / 35,444,640 shares * 10 = €4.09

8. Enterprise Value (EV) to Revenue: The EV/Revenue ratio compares the company's enterprise value to its revenue. A lower EV/Revenue ratio may indicate that the stock is undervalued. Lechwerke AG's EV/Revenue ratio is 2.02, which is higher than its historical average EV/Revenue ratio of 1.58. This suggests that Lechwerke AG is currently more expensive than its historical averages.

9. Enterprise Value (EV) to EBITDA: The EV/EBITDA ratio compares the company's enterprise value to its earnings before interest, taxes, depreciation, and amortization. A lower EV/EBITDA ratio may indicate that the stock is undervalued. Lechwerke AG's EV/EBITDA ratio is 124.17, which is higher than its historical average EV/EBITDA ratio of 12.5x. This suggests that Lechwerke AG is currently more expensive than its historical averages.

In conclusion, based on the provided data, Lechwerke AG (FRA:LEC) appears to be overvalued compared to its historical averages and industry peers. The company's high P/E ratio, EV/Revenue ratio, and EV/EBITDA ratio suggest that the stock is currently more expensive than its historical averages. However, Lechwerke AG's attractive dividend yield, high ROE, and solid FCF indicate that the company has strong fundamentals. Investors should carefully consider these factors when determining whether Lechwerke AG is a good investment opportunity.