Continental AG: Undervalued by 49% According to Intrinsic Calculation

Continental Aktiengesellschaft (ETR:CON), a leading German automotive manufacturing company, has been identified as undervalued by 49% based on an intrinsic calculation. This assessment takes into account various factors, including the company's earnings growth, dividend yield, price-to-earnings ratio (P/E), enterprise value/EBITDA (EV/EBITDA), and free cash flow (FCF) yield. This article will delve into the specific factors contributing to this undervaluation and discuss how the intrinsic value calculation accounts for the company's competitive advantages and potential risks in the near future.



1. Earnings Growth: Continental AG's earnings growth rate is expected to be around 10% per year, which is lower than the average growth rate of its peers in the industry. This slower growth rate contributes to the undervaluation of the stock.
2. Dividend Yield: The company has a dividend yield of 0.27%, which is significantly lower than the average dividend yield of its peers. This low dividend yield indicates that the company is not distributing a significant portion of its earnings to shareholders, contributing to the undervaluation of the stock.
3. Price-to-Earnings Ratio (P/E): The company's P/E ratio is 14.62, which is lower than the average P/E ratio of its peers in the industry. This low P/E ratio suggests that the stock is relatively cheap compared to its earnings, contributing to the undervaluation of the stock.
4. Enterprise Value/EBITDA (EV/EBITDA): The company's EV/EBITDA ratio is 13.04, which is lower than the average EV/EBITDA ratio of its peers in the industry. This low EV/EBITDA ratio suggests that the stock is relatively cheap compared to its earnings before interest, taxes, depreciation, and amortization, contributing to the undervaluation of the stock.
5. Free Cash Flow (FCF) Yield: The company's FCF yield is 6.26%, which is lower than the average FCF yield of its peers in the industry. This low FCF yield indicates that the company is not generating a significant amount of free cash flow, contributing to the undervaluation of the stock.

The intrinsic value calculation accounts for the company's competitive advantages and potential risks in the near future through the expected future return or growth rate and the discount rate used in the calculation. The expected future return or growth rate reflects the company's competitive advantages, such as its strong brand, extensive distribution network, or technological innovations. In the case of Continental AG, its competitive advantages might include its strong brand and extensive distribution network in the automotive industry. If these advantages are expected to drive significant growth in earnings, the intrinsic value calculation would incorporate this by using a higher expected growth rate, resulting in a higher intrinsic value.

The discount rate used in the intrinsic value calculation reflects the riskiness of the company's cash flows. A higher discount rate is used for riskier cash flows, which reduces the present value of future cash flows and thus the intrinsic value. This accounts for the potential risks the company faces in the near future. For example, if Continental AG faces significant risks such as regulatory changes or lower employment rates, the discount rate used in the intrinsic value calculation would be higher, reflecting these risks and reducing the intrinsic value.

In conclusion, the intrinsic calculation for Continental Aktiengesellschaft (ETR:CON) suggests that the stock is undervalued by 49%. This undervaluation can be attributed to several specific factors, including the company's earnings growth, dividend yield, P/E ratio, EV/EBITDA ratio, and FCF yield. The intrinsic value calculation accounts for the company's competitive advantages and potential risks in the near future through the expected future return or growth rate and the discount rate used in the calculation. Investors should consider this information when making investment decisions regarding Continental AG.

Important note: Investors are reminded to do their due diligence and not rely on the information provided as financial advice. Consider this article as supplementing your required research. Please always apply independent thinking.