Schneider Electric: A Rising Star in the Industrial Sector.

Schneider Electric has transformed from a mediocre industrial company to a strong business over the past decade, with improving ROIC and ROCE, increasing recurring revenue, and growing profitability. Despite this, the company's shares are not cheap, and investors should carefully consider the valuation before making a decision.

Schneider Electric has undergone a remarkable transformation over the past decade, evolving from a relatively mediocre industrial company to a strong business. Key indicators such as returns on invested capital (ROIC) and returns on capital employed (ROCE) have trended upward, while recurring revenue and profitability have also seen significant growth. Despite these positive trends, the company's shares are not cheap, and investors should exercise caution when evaluating its valuation.

One of the primary reasons for Schneider Electric's improved performance is its focus on increasing recurring revenue. This strategy has contributed to a more stable and predictable cash flow, which is essential for long-term growth and profitability. Additionally, the company's ROIC and ROCE have shown consistent improvement, indicating that it is effectively using its capital to generate higher returns.

However, while Schneider Electric's financial performance has been impressive, its valuation remains a significant consideration for investors. According to Simply Wall St, the company is trading at a Price-To-Earnings (P/E) ratio of 31.1x, which is higher than both its industry average (18.3x) and the average P/E ratio of its peers (23.2x). This suggests that Schneider Electric's shares may be overvalued relative to its peers and the broader market.

Moreover, the company's enterprise value-to-revenue ratio (EV/Revenue) stands at 3.7x, while its enterprise value-to-EBITDA ratio (EV/EBITDA) is 19.3x. These metrics indicate that Schneider Electric is trading at a premium compared to its industry peers, which may limit its attractiveness for value-oriented investors.

In terms of analyst consensus, the average target price for Schneider Electric is €252.94, which is less than 20% higher than the current share price of €238.90. This suggests that analysts are relatively optimistic about the company's future prospects but also acknowledge the potential for some upside in its valuation.

In conclusion, Schneider Electric's transformation into a strong business over the past decade is evident in its improved financial performance. However, investors should carefully consider the company's valuation before making a decision. While the company's shares may be overvalued relative to its peers and the industry average, its strong fundamentals and growth prospects may justify its current price for long-term investors.

References:
[1] https://seekingalpha.com/article/4803978-schneider-electric-firing-on-all-cylinders-but-shares-not-cheap
[2] https://simplywall.st/stocks/fr/capital-goods/epa-su/schneider-electric-shares/valuation