Daqo New Energy Corp (DQ, Financial) recently experienced a daily loss of -4.44%, and a 3-month loss of -31.78%. Despite this, the company boasts a robust Earnings Per Share (EPS) of 13.75. This analysis seeks to answer the question: Is Daqo New Energy significantly undervalued? Read on for an in-depth valuation analysis of this intriguing company.
Company Overview
Daqo New Energy Corp is a leading polysilicon manufacturer based in China. The company specializes in manufacturing and selling high-purity polysilicon to photovoltaic product manufacturers. These manufacturers then process polysilicon into ingots, cells, and modules for solar power solutions. Daqo New Energy offers ready-to-use polysilicon, packaged to meet crucible stacking, pulling, and solidification needs. All of its revenues are derived from the People's Republic of China.
Understanding the GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It is calculated based on historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line on our summary page provides a snapshot of the fair value at which the stock should ideally be traded.
Daqo New Energy's stock is estimated to be significantly undervalued based on the GF Value calculation. At its current price of $26.26 per share, Daqo New Energy has a market cap of $2 billion, indicating that the stock is undervalued. As a result, the long-term return of its stock is likely to be much higher than its business growth.
Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it is crucial to review a company's financial strength before deciding to buy shares. Daqo New Energy has a cash-to-debt ratio of 10000, which ranks better than 99.89% of 904 companies in the Semiconductors industry. Based on this, GuruFocus ranks Daqo New Energy's financial strength as 10 out of 10, suggesting a strong balance sheet.
Profitability and Growth
Investing in profitable companies, especially those that have demonstrated consistent profitability over the long term, poses less risk. Daqo New Energy has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of $3.40 billion and Earnings Per Share (EPS) of $13.75. Its operating margin is 58.12%, which ranks better than 99.37% of 954 companies in the Semiconductors industry. Overall, GuruFocus ranks the profitability of Daqo New Energy at 9 out of 10, which indicates strong profitability.
Growth is probably the most important factor in the valuation of a company. The 3-year average annual revenue growth of Daqo New Energy is 128.5%, which ranks better than 98.63% of 874 companies in the Semiconductors industry. The 3-year average EBITDA growth rate is 292%, which ranks better than 99.48% of 775 companies in the Semiconductors industry.
ROIC vs WACC
Another method of determining the profitability of a company is to compare its return on invested capital (ROIC) to the weighted average cost of capital (WACC). When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Daqo New Energy's ROIC is 44.66, and its WACC is 6.02.
Conclusion
In conclusion, the stock of Daqo New Energy (DQ, Financial) is estimated to be significantly undervalued. The company's financial condition is strong and its profitability is strong. Its growth ranks better than 99.48% of 775 companies in the Semiconductors industry. To learn more about Daqo New Energy stock, you can check out its 30-Year Financials here.
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